Filed pursuant to Rule 424(b)(3)
Registration No. 333-197767

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.  

SUPPLEMENT NO. 1 DATED MAY 16, 2016  

TO THE PROSPECTUS DATED MAY 2, 2016

This prospectus supplement (this “Supplement”) is part of and should be read in conjunction with the prospectus of Dividend Capital Diversified Property Fund Inc., dated May 2, 2016 (the “Prospectus”). This Supplement supersedes and replaces all prior supplements to the Prospectus. Unless otherwise defined herein, capitalized terms used in this Supplement shall have the same meanings as in the Prospectus.

The purpose of this Supplement is to disclose:

· the status of the offering;

· information about our repayments of borrowings under mortgage notes;

· information about our borrowing under a mortgage note;

· the commencement of a self-tender offer for our Class E shares of common stock;

· an update to our plan of distribution;

· an update to our risk factors;

· updated information with respect to our real properties and real estate-related debt and securities;

· updated selected information regarding our operations;

· updated information regarding our capitalization;

· updated information regarding fees and expenses payable to our Advisor, our Dealer Manager and their affiliates;

· “Management’s Discussion and Analysis of Financial Condition and Results of Operations” similar to that filed in our Quarterly Report on Form 10-Q for the period ended March 31, 2016, which includes the components of our net asset value (“NAV”) calculation as of March 31, 2016;

· updated certain historical NAV information;

· updated quantitative and qualitative disclosures about market risk;

· updated experts information; and

· our consolidated financial statements and the notes thereto as of and for the period ended March 31, 2016.

Status of the Offering

As of May 10, 2016, we had raised gross proceeds of approximately $24.1 million from the sale of approximately 3.2 million shares in this offering, including proceeds from our distribution reinvestment plan of approximately $3.9 million. As of May 10, 2016, approximately $972.0 million in shares remained available for sale pursuant to this offering, including approximately $246.1 million in shares available for sale through our distribution reinvestment plan.

Repayments of Mortgage Notes

Subsequent to March 31, 2016, we repaid two mortgage note borrowings in full using proceeds from our revolving credit facility. The following table describes our repayment of mortgage note borrowings subsequent to March 31, 2016 (dollar amounts in thousands): 

Debt Obligation	Repayment Date	Balance as of March 31, 2016		Stated Interest Rate		Contractual Maturity Date	Collateral Type	Collateral Market
655 Montgomery	4/11/2016	$	55,905	6.01	%	06/11/16	Office Property	San Francisco, CA
Jay Street	4/11/2016		23,500	6.05	%	07/11/16	Office Property	Silicon Valley, CA
Total/weighted average		$	79,405	6.02	%

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Borrowing Under Mortgage Note

On April 13, 2016, we received proceeds from a new mortgage note borrowing of approximately $33.0 million subject to an interest rate spread of 1.60% over one-month LIBOR, which matures in March 2023. We have effectively fixed the interest rate of the borrowing using interest rate swaps at 3.05% for the term of the borrowing. The mortgage note will be non-amortizing for the first two years and will be amortizing on a 30-year amortization schedule thereafter. The mortgage note is secured by an office property in the Dallas, TX market.

Commencement of a Self-Tender Offer for our Class E Shares of Common Stock

On May 6, 2016, we commenced a self-tender offer to purchase for cash up to 4,103,967 of our Class E shares, or approximately $30 million of our Class E shares, subject to our ability to increase the number of shares accepted for payment in the offer by up to but not more than 2% of the Company’s outstanding Class E shares (resulting in a commensurate increase in the number of shares by up to approximately 2.7 million shares) without amending or extending the offer in accordance with rules promulgated by the Commission, at a purchase price of $7.31 per share, net to the seller in cash, less any applicable withholding taxes and without interest. The Company’s offer is being made upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 6, 2016, and in the related Letter of Transmittal, filed with the Commission on Schedule TO on May 6, 2016 and available at www.sec.gov. Unless extended or withdrawn, the offer will expire at 5:00 p.m. Central Time, on Tuesday, June 14, 2016.

The purchase of Class E shares pursuant to the offer will have the following effects:

· Depending on how many shares are purchased, the offer will decrease the amount of cash we have available for other purposes, such as making new investments, and will likely increase our leverage and our borrowing costs as we intend to finance a portion of the offer with borrowings.

· If the purchase price is lower than our NAV, the purchases of shares pursuant to the offer may have a slightly positive impact to our NAV for remaining stockholders. This positive impact may result in better overall total stockholder returns for remaining stockholders, which may result in a slight increase to the performance-based advisory fee that is paid to our Advisor.

· Purchases of shares pursuant to the offer will increase the proportionate interest of stockholders that do not tender their shares.

· Class E stockholders who tender all of their shares will give up the opportunity to participate in any potential future benefits from owning shares, including the right to receive any future dividends or distributions that we may pay.

Because there will be fewer outstanding Class E shares, we anticipate that the base management fees paid to our Advisor will decrease.

Plan of Distribution

General

The following paragraph supplements the section of the Prospectus entitled “Plan of Distribution—General.”

Participating broker-dealers may require customer subscriptions to be submitted on certain closing dates and may impose their own restrictions on who may participate in this offering through minimum purchase amounts, minimum investable funds or other requirements. Prospective investors should discuss their potential eligibility with their participating broker-dealer.

Primary Dealer Fee

The following supplements the section of the Prospectus entitled “Plan of Distribution—Underwriting Compensation—Primary Dealer Fee.”

On May 11, 2016, we notified the Dealer Manager that we would pay a primary dealer fee in the amount of up to 5.0% of the gross proceeds raised from the sale of Class I shares in the primary portion of the offering from May 11, 2016 through June 30, 2016 (the “Managed Offering Term”), but only with respect to sales made by participating broker-dealers that we specifically approved as being eligible (“Primary Dealers”). We have approved three participating broker-dealers as being eligible to participate, generally through selected dealer agreements entered into between the Primary Dealers and the Dealer Manager. In addition, we, the Dealer Manager and the Advisor entered into a new selected dealer agreement (the “Managed Offering Selected Dealer Agreement”) with one of the three approved Primary Dealers, Raymond James & Associates, Inc. (“Raymond James”), pursuant to which Raymond James will use its best efforts to sell Class I shares in transactions entitling it to primary dealer fees during the Managed Offering Term. Pursuant to this agreement, Raymond James may sell Class I shares in the primary portion of the offering up to $50 million in total gross proceeds, provided that we may unilaterally elect to increase the limit up to $100 million. During the Managed Offering Term, we may allow other participating broker-dealers to join as Primary Dealers eligible to receive primary dealer fees.

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Risk Factors

The following risk factors supplement risk factors contained in the Prospectus and all similar disclosure in the Prospectus:

We may default on our derivative obligations if we default on the indebtedness underlying such obligations.

We have agreements with certain of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. We also have agreements with certain other derivative counterparties that contain a provision whereby if we default on any of our indebtedness held by our Operating Partnership, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. If we are declared in default under the terms of a derivative contract, the counterparty would have the right to terminate all outstanding derivative transactions between us and that counterparty and settle them based on their net market value or replacement cost. As of March 31, 2016, the fair value of derivatives in a net liability position, which included accrued interest but excluded any credit valuation adjustments related to these agreements, was approximately $13.2 million. If we had breached any of these provisions at March 31, 2016, we could have been required to settle our obligations under the agreements at their termination value of $13.2 million.

A change in U.S. accounting standards regarding operating leases may make the leasing of our properties less attractive to our potential tenants, which could reduce overall demand for our leasing services.

Under current authoritative accounting guidance for leases, a lease is classified by a customer as a capital lease if the significant risks and rewards of ownership are considered to reside with the customer. Under capital lease accounting, both the leased asset and liability are reflected on the customer’s balance sheet. If the terms of the lease do not meet the criteria for a capital lease, the lease is considered an operating lease and no leased asset or contractual lease obligation is recorded on the customer’s balance sheet. Accordingly, under the current accounting standards for leases, the entry into an operating lease with respect to real property can appear to enhance a customer’s reported financial condition or results of operations in comparison to the customer’s direct ownership of the property.

In order to address concerns raised by the Commission regarding the transparency of contractual lease obligations under the existing accounting standards for operating leases, the FASB issued ASU 2016-02 on February 25, 2016, which substantially changes the current lease accounting standards, primarily by eliminating the concept of operating lease accounting. As a result, a lease asset and obligation will be recorded on the customer’s balance sheet for all lease arrangements with terms greater than twelve months. In addition, ASU 2016-02 will impact the method in which contractual lease payments will be recorded. In order to mitigate the effect of the new lease accounting standards, customers may seek to negotiate certain terms within new lease arrangements or modify terms in existing lease arrangements, such as shorter lease terms, which would generally have less impact on their balance sheets. Also, customers may reassess their lease-versus-buy strategies. This could result in a greater renewal risk, a delay in investing our offering proceeds, or shorter lease terms, all of which may negatively impact our operations and our ability to pay distributions to our stockholders. The new leasing standard is effective on January 1, 2019, with early adoption permitted.

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INVESTMENTS IN REAL PROPERTIES AND REAL ESTATE-RELATED DEBT AND SECURITIES

Our long-term investment strategy includes diversification across multiple dimensions, including investment type (i.e. real properties and real estate-related debt and securities), property type (e.g. office, industrial, retail, etc.) and geography. We believe that a diversified investment portfolio may potentially offer investors significant benefits for a given level of risk relative to a more concentrated invested portfolio. However, we cannot assure you that we will attain our long-term investment objectives. Over time, we expect our portfolio allocations may become more consistent with our long-term diversification strategy. The following series of charts illustrates our investment portfolio allocations as of March 31, 2016.

Our investment portfolio was comprised of approximately 99% real property investments and approximately 1% debt related investments, based on fair value, as of March 31, 2016. The chart below describes the diversification of our investment portfolio (including debt related investments) across real property type. Percentages in the chart correspond to the fair value as of March 31, 2016. 

 

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Through our investments in real property and debt related investments, we also seek diversification across multiple geographic regions primarily located in the United States. The chart below shows the current allocations of our real property investments across geographic regions within the continental United States. Percentages in the chart correspond to our fair value as of March 31, 2016. Any market for which we do not show a corresponding percentage of our total fair value comprises 1% or less of the total fair value of our real property portfolio. As of March 31, 2016, our real property investments were geographically diversified across 20 markets. Our debt related investments are located in three additional markets resulting in a combined portfolio allocation across 23 markets.

 

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Real Properties

The following table describes our operating properties as of March 31, 2016, by market (dollar amounts and square footage amounts in thousands).

Market	Number of Properties		Gross Investment Amount		% of Gross Investment Amount			Net Rentable Square Feet		% of Total Net Rentable Square Feet			% Leased (1)			Secured Indebtedness (2)
Office Properties:
Northern New Jersey		1	$	224,641		10.4	%		594		6.4	%		100.0	%	$	106,294
Austin, TX		3		154,410		7.1	%		585		6.3	%		99.4	%		—
East Bay, CA		1		145,339		6.7	%		405		4.4	%		100.0	%		—
San Francisco, CA		1		120,799		5.6	%		265		2.9	%		93.3	%		55,905
Washington, DC		2		104,452		4.8	%		304		3.3	%		38.6	%		—
Denver, CO		1		82,353		3.8	%		257		2.8	%		92.2	%		—
South Florida		2		82,188		3.8	%		363		3.9	%		91.8	%		—
Princeton, NJ		1		51,256		2.4	%		167		1.8	%		100.0	%		—
Philadelphia, PA		1		43,640		2.0	%		173		1.9	%		85.6	%		24,000
Silicon Valley, CA		1		42,094		1.9	%		143		1.5	%		91.8	%		23,500
Dallas, TX		1		36,314		1.7	%		155		1.7	%		89.5	%		—
Minneapolis/St Paul, MN		1		29,515		1.4	%		107		1.2	%		100.0	%		—
Fayetteville, AR		1		11,695		0.5	%		63		0.7	%		100.0	%		—
Total/Weighted Average Office: 13 markets with average annual rent of $30.85 per sq. ft.		17		1,128,697		52.1	%		3,581		38.8	%		91.3	%		209,699
Industrial Properties:
Dallas, TX		1		35,789		1.7	%		446		4.8	%		35.1	%		22,700
Central Kentucky		1		30,840		1.4	%		727		7.9	%		100.0	%		—
Louisville, KY		4		27,430		1.3	%		736		7.9	%		88.5	%		—
Total/Weighted Average Industrial: three markets with average annual rent of $3.54 per sq. ft.		6		94,059		4.4	%		1,909		20.6	%		80.4	%		22,700
Retail Properties:
Greater Boston		26		546,025		25.2	%		2,280		24.6	%		94.2	%		84,396
Philadelphia, PA		1		105,203		4.9	%		426		4.6	%		100.0	%		67,800
Washington, DC		1		62,571		2.9	%		233		2.5	%		99.3	%		70,000
Northern New Jersey		1		58,429		2.7	%		223		2.4	%		94.6	%		—
Raleigh, NC		1		45,697		2.1	%		142		1.5	%		97.9	%		26,200
South Florida		1		37,899		1.8	%		124		1.3	%		100.0	%		10,758
Tulsa, OK		1		34,147		1.6	%		101		1.1	%		100.0	%		—
San Antonio, TX		1		32,069		1.5	%		161		1.7	%		89.6	%		21,500
Jacksonville, FL		1		19,495		0.8	%		73		0.9	%		20.3	%		—
Total/Weighted Average Retail: nine markets with average annual rent of $16.90 per sq. ft.		34		941,534		43.5	%		3,763		40.6	%		94.1	%		280,654
Grand Total/Weighted Average		57	$	2,164,290		100.0	%		9,253		100.0	%		90.2	%	$	513,053

(1) Based on executed leases as of March 31, 2016.

(2) Secured indebtedness represents the principal balance outstanding and does not include our mark-to-market adjustment on debt or net debt issuance costs.

Net Operating Income

The following table illustrates the historic net operating income derived from our investments in real properties for the three months ended March 31, 2016 and the year ended December 31, 2015 (amounts in thousands). 

		For the Three Months Ended March 31, 2016							For the Year Ended December 31, 2015
	Office		Industrial		Retail		Total		Office		Industrial		Retail		Total
Rental Revenue (1)	$	33,969	$	1,711	$	19,864	$	55,544	$	137,204	$	8,672	$	72,402	$	218,278
Rental Expenses		(10,686)		(444)		(5,188)		(16,318)		(39,763)		(1,917)		(17,910)		(59,590)
Net Operating Income	$	23,283	$	1,267	$	14,676	$	39,226	$	97,441	$	6,755	$	54,492	$	158,688

(1) Rental revenues include adjustments as defined by GAAP such as straight-line rent adjustments and above and below market rent amortization. In addition, rental revenues include percentage rents, operating expense reimbursements and other miscellaneous items.

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We consider net operating income, or NOI, to be an appropriate supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and excludes certain items that are not considered to be controllable in connection with the management of each property, such as gains on the disposition of securities, other-than-temporary impairment, losses related to provisions for losses on debt related investments, gains or losses on derivatives, acquisition related expenses, losses on extinguishment of debt and financing commitments, interest income, depreciation and amortization, general and administrative expenses, asset management fees, interest expense and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our financial performance as a whole, since it does exclude such items that could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance.

The following table is a reconciliation of our NOI to our reported net income attributable to common stockholders for the three months ended March 31, 2016 and the year ended December 31, 2015 (amounts in thousands). 

	For the Three Months Ended March 31, 2016			For the Year Ended December 31, 2015
Net operating income	$	39,226		$	158,688
Debt related income		238			6,922
Real estate depreciation and amortization expense		(19,835	)		(83,114	)
General and administrative expenses		(2,621	)		(10,720	)
Advisory fees, related party		(3,765	)		(17,083	)
Acquisition-related expenses		(51	)		(2,644	)
Impairment of real estate property		(587	)		(8,124	)
Interest and other income		58			2,192
Interest expense		(10,961	)		(47,508	)
Gain (loss) on extinguishment of debt and financing commitments		5,136			(1,168	)
Gain on sale of real property		41,400			134,218
Net income attributable to noncontrolling interests		(4,456	)		(7,404	)
Net income attributable to common stockholders	$	43,782		$	124,255

Our primary source of funding for our property-level operating expenses and debt service payments is rent collected pursuant to our tenant leases. Our properties are generally leased to tenants for the longer term. As of March 31, 2016, the weighted average remaining term of our leases was approximately 4.2 years, based on annualized base rent, and 4.6 years, based on leased square footage. The following is a schedule of expiring leases for our consolidated operating properties by annualized base rent and square footage as of March 31, 2016 and assuming no exercise of lease renewal options (dollar amounts and square footage in thousands). 

	Lease Expirations
Year (1)	Number of Leases Expiring	Annualized Base Rent (2)		%	Square Feet	%
2016 (3)	70	$	4,436	2.7%	277	3.3%
2017	89		43,655	26.3%	1,389	16.7%
2018	118		12,989	7.8%	638	7.5%
2019	101		24,334	14.6%	1,208	14.5%
2020	105		23,521	14.2%	1,193	14.3%
2021	55		16,670	10.0%	1,598	19.2%
2022	30		9,040	5.4%	507	6.1%
2023	33		15,772	9.5%	641	7.7%
2024	23		4,826	2.9%	322	3.9%
2025	14		3,529	2.1%	191	2.3%
Thereafter	25		7,437	4.5%	375	4.5%
Total	663	$	166,209	100.0%	8,339	100.0%

(1) The lease expiration year does not include the consideration of any renewal or extension options. Also, the lease expiration year is based on noncancellable lease terms and does not extend beyond any early termination rights that the tenant may have under the lease.

(2) Annualized base rent represents the annualized monthly base rent of leases executed as of March 31, 2016.

(3) Represents the number of leases expiring and annualized base rent for the remainder of 2016. Includes 10 leases with annualized base rent of approximately $251,000 that are on a month-to-month basis.

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The following table describes our top ten tenants based on annualized base rent and their industry sectors as of March 31, 2016 (dollar and square footage amounts in thousands).

	Tenant	Locations	Industry Sector	Annualized Base Rent (1)		% of Total Annualized Base Rent	Square Feet	% of Occupied Square Feet
1	Charles Schwab & Co, Inc.	2	Securities, Commodities, Fin. Inv./Rel. Activities	$	23,408	14.2%	602	7.3%
2	Sybase	1	Publishing Information (except Internet)		18,692	11.4%	405	4.9%
3	Stop & Shop	15	Food and Beverage Stores		14,168	8.6%	882	10.6%
4	Novo Nordisk	1	Chemical Manufacturing		4,535	2.8%	167	2.0%
5	Seton Health Care	1	Hospitals		4,339	2.6%	156	1.9%
6	Shaw’s Supermarket	4	Food and Beverage Stores		3,944	2.4%	240	2.9%
7	I.A.M. National Pension Fund	1	Funds, Trusts and Other Financial Vehicles		3,023	1.8%	63	0.8%
8	TJX Companies	7	Clothing and Clothing Accessories Stores		2,969	1.8%	299	3.6%
9	Home Depot	1	Building Material and Garden Equipment and Supplies Dealers		2,469	1.5%	102	1.2%
10	Alliant Techsystems Inc.	1	Fabricated Metal Product Manufacturing		2,406	1.5%	107	1.3%
	Total	34		$	79,953	48.6%	3,023	36.5%

(1) Annualized base rent represents the annualized monthly base rent of executed leases as of March 31, 2016.

The following table describes our top ten tenant industry sectors based on annualized base rent as of March 31, 2016 (dollar and square footage amounts in thousands).

Industry Sector	Number of Leases	Annualized Base Rent (1)		% of Annualized Base Rent	Occupied Square Feet	% of Occupied Square Feet
Securities, Commodity Contracts, and Other Financial Investments and Related Activities	26	$	25,755	15.5%	678	8.1%
Food and Beverage Stores	41		24,349	14.6%	1,650	19.8%
Publishing Information (except Internet)	3		19,037	11.5%	413	5.0%
Professional, Scientific and Technical Services	102		13,411	8.1%	609	7.3%
Computer and Electronic Product Manufacturing	7		6,924	4.2%	432	5.2%
Food Services and Drinking Places	81		6,309	3.8%	225	2.7%
Clothing and Clothing Accessories Stores	31		6,157	3.7%	424	5.1%
Chemical Manufacturing	3		5,403	3.3%	461	5.5%
Credit Intermediation and Related Activities	32		5,319	3.2%	170	2.0%
Ambulatory Health Care Services	55		5,044	3.0%	213	2.6%
Other (2)	282		48,501	29.1%	3,064	36.7%
Total	663	$	166,209	100.0%	8,339	100.0%

(1) Annualized base rent represents the annualized monthly base rent of executed leases as of March 31, 2016.

(2) Other industry sectors include 42 additional sectors.

Debt Related Investments

As of March 31, 2016, we had invested in three debt related investments structured as mortgage notes. As of March 31, 2016, the carrying value of our debt related investments was approximately $15.6 million, which includes (i) unpaid principal balances and (ii) unamortized discounts, premiums and deferred charges. The weighted average yield of our debt related investments as of March 31, 2016 was 6.1%, which is calculated on an unlevered basis using the amount invested, current interest rates and accretion of premiums or discounts realized upon the initial investment. The weighted average remaining contractual loan term of our debt related investments as of March 31, 2016 was 3.0 years.

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Borrowings

The following table describes our borrowings as of March 31, 2016 (dollar amounts in thousands). 

	Principal Balance		Weighted Average Stated Interest Rate	Gross Investment Amount Securing Borrowings (1)
Fixed-rate mortgages	$	513,053	5.4%	$	921,587
Total secured borrowings		513,053	5.4%		N/A
Line of credit (2)		82,000	3.4%		N/A
Term loans (3)		350,000	2.6%		N/A
Total unsecured borrowings		432,000	2.8%		N/A
Total borrowings	$	945,053	4.2%		N/A
Less: net debt issuance costs (4)	$	(5,762)
Add: mark-to-market adjustment on assumed debt		723
Total borrowings (GAAP basis)	$	940,014

(1) “Gross Investment Amount” as used here and throughout this document represents the allocated gross basis of real property after certain adjustments. Gross Investment Amount for real property (i) includes the effect of intangible lease liabilities, (ii) excludes accumulated depreciation and amortization, and (iii) includes the impact of impairments.

(2) As of March 31, 2016, approximately $50.0 million borrowings under our line of credit were subject to interest at a floating rate of 1.55% over one-month LIBOR, which we had effectively fixed using interest rate swaps, resulting in a stated interest rate of 2.96%. As of March 31, 2016, approximately $32.0 million borrowings under our line of credit were subject to interest at a floating rate of 0.55% over the interest rate publicly announced by Bank of America as its “prime rate”, resulting in a stated interest rate of 4.05%.

(3) As of March 31, 2016, borrowings under our term loans were subject to interest at weighted average floating rates of 1.56% over one-month LIBOR, which we had effectively fixed using interest rate swaps, resulting in a stated interest rate of 2.64%.

(4) See Note 2 to our financial statements beginning on page F-1 of this Supplement for information related to the reclassification of net debt issuance costs in accordance with ASU 2015-03.

The following table reflects our contractual debt maturities as of March 31, 2016, specifically our obligations under our mortgage notes and unsecured borrowings (dollar amounts in thousands). 

	As of March 31, 2016
	Mortgage Notes			Unsecured Borrowings			Total
Year Ending December 31,	Number of Borrowings Maturing	Outstanding Principal Balance		Number of Borrowings Maturing	Outstanding  Principal Balance		Outstanding Principal  Balance
2016	4	$	210,883	—	$	—	$	210,883
2017	6		206,660	—		—		206,660
2018	—		1,762	1		150,000		151,762
2019	—		1,869	1		82,000		83,869
2020	—		1,982	—		—		1,982
2021	1		10,825	—		—		10,825
2022	1		1,663	1		200,000		201,663
2023	—		978	—		—		978
2024	—		1,034	—		—		1,034
2025	1		71,094	—		—		71,094
Thereafter	2		4,303	—		—		4,303
Total	15	$	513,053	3	$	432,000	$	945,053
Less: net debt issuance costs (1)			(1,023)			(4,739)
Add: mark-to-market adjustment on assumed debt			723			—
Total borrowings (GAAP basis)		$	512,753		$	427,261

(1) See Note 2 to our financial statements beginning on page F-1 of this Supplement for information related to the reclassification of net debt issuance costs in accordance with ASU 2015-03.

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SELECTED INFORMATION REGARDING OUR OPERATIONS

Selected Financial Data

The following table presents selected historical consolidated financial information for the years ended December 31, 2015, 2014, 2013, 2012, and 2011 and for the three months ended March 31, 2016 and 2015; and balance sheet information as of December 31, 2015, 2014, 2013, 2012, and 2011 and as of March 31, 2016 and 2015. The selected historical consolidated financial information presented below has been derived from our consolidated financial statements. Because the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes thereto, you should read it in conjunction with our historical financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (a) for the year ended December 31, 2015, which are included in our Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated by reference into the Prospectus, and (b) for the three months ended March 31, 2016, which are included in this Supplement. The amounts in the table are in thousands except per share data.  

	As of or For the Three Months Ended March 31,						As of or For the Year Ended December 31,
	2016			2015			2015			2014			2013			2012			2011
Statement of Operations Data:
Total revenue	$	55,782		$	62,582		$	225,200		$	231,597		$	217,777		$	216,325		$	218,857
Total operating expenses, excluding acquisition-related expenses and gains and losses on real property, debt related investments, and real estate securities		(42,539	)		(42,978	)		(170,507	)		(167,018	)		(155,740	)		(156,550	)		(162,885	)
Acquisition-related expenses net of other gains		(51	)		(425	)		(2,644	)		(1,205	)		(536	)		(325	)		(610	)
Impairments and provisions for loss on real property, real estate-related debt investments and real estate securities (1)		(587	)		(1,400	)		(8,124	)		(9,500	)		(2,600	)		—			(26,406	)
Gain on sale of real property (2)		41,400			128,667			134,218			10,914			—			—			—
Interest expense		(10,961	)		(13,981	)		(47,508	)		(61,903	)		(65,325	)		(69,844	)		(74,406	)
Income (loss) from continuing operations (3)		48,238			132,201			131,659			3,990			(9,084	)		(14,961	)		(43,056	)
Discontinued operations (4)		—			—			—			30,004			65,554			(7,410	)		(21,510	)
Net income (loss)		48,238			132,201			131,659			33,994			56,470			(22,371	)		(64,566	)
Net (income) loss attributable to noncontrolling interests		(4,456	)		(8,618	)		(7,404	)		(4,802	)		(4,002	)		110			6,886
Net income (loss) attributable to common stockholders	$	43,782		$	123,583		$	124,255		$	29,192		$	52,468		$	(22,261	)	$	(57,680	)
Comprehensive Income (Loss) Data:
Net income (loss)	$	48,238		$	132,201		$	131,659		$	33,994		$	56,470		$	(22,371	)	$	(64,566	)
Net unrealized change from available-for-sale securities		—			—			—			(211	)		—			(1,426	)		1,260
Net unrealized change from cash flow hedging derivatives		(9,078	)		(1,807	)		(977	)		721			4,975			3,963			2,837
Total other comprehensive (loss) income		(9,078	)		(1,807	)		(977	)		510			4,975			2,537			4,097
Comprehensive income (loss)	$	39,160		$	130,394		$	130,682		$	34,504		$	61,445		$	(19,834	)	$	(60,469	)
Per Share Data:
Net income (loss) per basic and diluted common share:
Continuing operations	$	0.27		$	0.69		$	0.70		$	0.02		$	(0.05	)	$	(0.08	)	$	(0.22	)
Discontinued operations	$	—		$	—		$	—		$	0.14		$	0.34		$	(0.04	)	$	(0.09	)
Common Stock Distributions
Common stock distributions declared	$	14,655		$	16,078		$	63,145		$	62,236		$	62,330		$	84,259		$	105,704
Weighted average common stock distributions declared per share	$	0.0894		$	0.0897		$	0.3582		$	0.3492		$	0.3499		$	0.4625		$	0.5750
Other Information:
Weighted average number of common shares outstanding:
Basic		163,954			179,317			175,938			178,273			178,196			181,982			183,813
Diluted		176,690			191,766			188,789			190,991			191,932			197,244			197,377
Number of common shares outstanding at end of period		161,310			178,310			164,124			178,400			176,007			178,128			182,331
Number of diluted shares outstanding at end of period		173,887			191,434			176,932			190,547			189,278			192,303			198,529
Balance Sheet Data:
Real estate, before accumulated depreciation (5)	$	2,164,290		$	2,139,022		$	2,380,174		$	2,472,926		$	2,570,480		$	2,819,550		$	2,724,684
Total assets	$	1,794,473		$	1,843,246		$	1,960,891		$	2,140,628		$	2,294,724		$	2,646,162		$	2,657,639
Total debt obligations (6)	$	940,014		$	825,847		$	1,097,769		$	1,191,675		$	1,313,822		$	1,607,517		$	1,470,000
Total liabilities	$	1,069,600		$	951,528		$	1,234,940		$	1,376,648		$	1,489,714		$	1,804,635		$	1,658,371
Cash Flow Data:
Net cash provided by operating activities	$	15,214		$	25,551		$	105,530		$	87,229		$	86,589		$	94,487		$	94,342
Net cash provided by (used in) investing activities	$	168,470		$	239,385		$	74,421		$	(15,102	)	$	72,847		$	(39,465	)	$	89,457
Net cash used in financing activities	$	(187,778	)	$	(269,171	)	$	(178,643	)	$	(82,444	)	$	(171,530	)	$	(146,597	)	$	(138,911	)
Supplemental Information
FFO attributable to common stockholders (3)(7)	$	24,180		$	23,941		$	82,170		$	85,246		$	85,216		$	82,851		$	65,237
Company-defined FFO attributable to common stockholders (7)	$	20,421		$	25,187		$	85,719		$	86,430		$	88,044		$	88,402		$	90,680

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(1) Impairments and provisions for loss on real property, real estate-related debt investments and real estate securities include (i) real property impairment of $587,000 and $1.4 million during the three months ended March 31, 2016 and 2015, respectively, and $8.1 million, $9.5 million, and $2.6 million during the years ended 2015, 2014, and 2013, respectively, (ii) provisions for loan loss, net of reversals, of $23.0 million during 2011, and (iii) other than temporary impairment on securities of $3.4 million during 2011. Real property impairment losses of $5.7 million and $23.5 million recorded during the years ended December 31, 2012 and 2011, respectively, relate to properties that we have disposed of and are included within discontinued operations.

(2) Beginning with the year ended December 31, 2014, as the result of adopting new accounting guidance, we present the aggregate net gains related to disposals of properties that are not classified as discontinued operations within continuing operations. See “Discontinued Operations” in Note 3 to our financial statements beginning on page F-1 of this Supplement for information regarding the adoption of new accounting guidance related to discontinued operations.

(3) Income (loss) from continuing operations and FFO attributable to common stockholders includes gains or (losses) on extinguishment of debt of $5.1 million and ($896,000) for the three months ended March 31, 2016 and 2015, respectively, and ($1.2 million), ($2.5 million), and ($5.7 million) during the years ended December 31, 2015, 2013, and 2012, respectively.

(4) After December 31, 2013, a discontinued operation is a component (or group of components) of the entity, the disposal of which would represent a strategic shift that has (or will have) a major effect on the entity’s operations and financial results, when such component (or group of components) have been disposed of or classified as held for sale. Through December 31, 2013, discontinued operations represent properties that we have either disposed of or have classified as held for sale if both the operations and cash flows of the property have been or will be eliminated from our ongoing operations as a result of the disposal transaction and if we will not have any significant continuing involvement in the operations of the property after the disposal transaction. Discontinued operations includes the results of (i) 12 properties classified as held for sale as of December 31, 2013, (ii) 13 properties disposed of during 2013, (iii) three properties disposed of during 2012, and (iv) five properties disposed of during 2011.

(5) Real estate, before accumulated depreciation includes approximately $30.4 million and $193.6 million that we classified within assets held for sale as of December 31, 2014 and 2013, respectively.

(6) Total debt obligations includes approximately $80.4 million that we classified within liabilities related to assets held for sale as of December 31, 2013.

(7) FFO and Company-Defined FFO are defined, reconciled to GAAP net income, and discussed below in “Selected Information Regarding Our Operations – How We Measure Our Operating Performance – Funds From Operations.”

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Share Redemptions and Repurchases

Below is a summary of Class E common stock repurchases pursuant to our self-tender offers and redemptions pursuant to the Class E share redemption program for each quarter during 2015 and the first quarter of 2016 (number of shares in thousands). 

For the Quarter Ended:	Number of Class E Shares Requested for Redemption or Purchase		Number of Class E Shares Redeemed or Purchased		Percentage of Class E Shares Requested for Redemption Redeemed or for Purchase Purchased			Price Paid per Share
March 31, 2015
Class E SRP – Ordinary Redemptions		18,570		1,104		5.9	%	$	7.30
Class E SRP – Death or Disability Redemptions		426		426		100.0	%		7.30
Total / Average		18,996		1,530		8.1	%		7.30
June 30, 2015
Class E SRP – Ordinary Redemptions		20,031		4,379		21.9	%		7.38
Class E SRP – Death or Disability Redemptions		626		626		100.0	%		7.38
Total / Average		20,657		5,005		24.2	%		7.38
September 30, 2015
Class E SRP – Ordinary Redemptions		12,456		1,393		11.2	%		7.42
Class E SRP – Death or Disability Redemptions		452		452		100.0	%		7.42
Self-Tender Offer Purchases (1)		17,153		17,153		100.0	%		7.25
Total / Average		30,061		18,998		63.2	%		7.27
December 31, 2015
Self-Tender Offer Purchases (2)		20,758		2,707		13.0	%		7.39
Total / Average		20,758		2,707		13.0	%		7.39
Average 2015		22,618		7,060		31.2	%	$	7.30
March 31, 2016
Class E SRP – Death or Disability Redemptions		460		460		100.0	%	$	7.43
Self-Tender Offer Purchases (2)		13,660		4,058		29.7	%		7.39
Total / Average 2016		14,120		4,518		32.0	%	$	7.39

(1) Amounts represent Class E shares properly tendered and not properly withdrawn at or below the final purchase price of $7.25 per share of a modified “Dutch auction” tender offer, which we completed on August 12, 2015. An additional 6,863 Class E shares were submitted for redemption at prices higher than the final purchase price, and were therefore not properly tendered.

(2) Amounts represent Class E shares purchased pursuant to self-tender offers, which we completed on December 23, 2015 and March 14, 2016.

Additionally, during 2015 and the first quarter of 2016, we satisfied 100% of redemption requests received pursuant to our Class A, Class W and Class I share redemption program. Below is a summary of common stock redemptions pursuant to the Class A, Class W and Class I share redemption program for each quarter during 2015 and the first quarter of 2016 (amounts in thousands except per share and percentage data). 

For the Quarter Ended:	Aggregate Number of A, W, and I Shares Requested for Redemption		Aggregate Number of A, W, and I Shares Redeemed		Percentage of A, W, and I Shares Requested for Redemption Redeemed			Average Price Paid per Share
March 31, 2015		142		142		100.0	%		7.20
June 30, 2015		121		121		100.0	%		7.27
September 30, 2015		118		118		100.0	%		7.34
December 31, 2015		536		536		100.0	%		7.44
Average 2015		229		229		100.0	%	$	7.37
March 31, 2016		182		182		100.0	%		7.42
Average 2016		182		182		100.0	%	$	7.42

Share redemptions during the first quarter of 2016 for both our Class E share redemption program and our Class A, Class W and Class I share redemption program were funded through a combination of offering proceeds from our ongoing primary offering of Class A, Class W and Class I shares, sales of Class E, Class A, Class W and Class I shares pursuant to our distribution reinvestment plan, and asset sales. 

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Distribution Information

On March 17, 2016, the Company’s board of directors authorized a quarterly distribution of $0.09 per share of common stock, subject to adjustment for class-specific fees, for the second quarter of 2016. The Company’s board of directors reserves the right to revisit this distribution level during the quarter with respect to record dates that have not yet passed. The distribution will be payable to stockholders of record as of the close of business on each day during the period, from April 1, 2016 through and including June 30, 2016, prorated for the period of ownership. Distributions on our shares accrue daily.

In the prior five quarters, our board of directors authorized quarterly distributions for our stockholders equal to $0.09 per share for each quarter of 2015 and the first quarter of 2016, subject to adjustment for class-specific fees. We paid these distributions on April 16, 2015, July 2, 2015, October 16, 2015, January 19, 2016, and April 18, 2016.

The following table sets forth relationships between the amounts of total distributions, including distributions to noncontrolling interests, declared for such period, the amount reported as cash flow from operations in accordance with GAAP, and the amount reported as NAREIT-defined FFO for each quarter during 2015 and the first quarter of 2016. All authorized distributions reduce our NAV, including those funded with borrowings.  

Three Months Ended:		Paid in Cash		% Paid in Cash			Reinvested in Shares		% Reinvested in Shares			Total		Cash Flow from  Operations (1)		% Funded with Cash Flows from Operations (1)			Cash on Hand (2)		% Funded with Cash on Hand
	March 31, 2015	$	11,937		69	%	$	5,325		31	%	$	17,262	$	25,551		100	%	$	—		0	%
	June 30, 2015		12,163		69	%		5,502		31	%		17,665		22,317		100	%		—		0	%
	September 30, 2015		11,803		69	%		5,257		31	%		17,060		30,033		100	%		—		0	%
	December 31, 2015		11,061		68	%		5,093		32	%		16,154		27,629		100	%		—		0	%
	Total 2015	$	46,964		69	%	$	21,177		31	%	$	68,141	$	105,530		100	%	$	—		0	%
	March 31, 2016		10,870		68	%		5,099		32	%		15,969		15,214		95	%		755		5	%
	Total 2016	$	10,870		68	%	$	5,099		32	%	$	15,969	$	15,214		95	%	$	755		5	%

(1) Commencing on January 1, 2009, expenses associated with the acquisition of real property are recorded to earnings and as a deduction to our cash from operations. See “Selected Information Regarding Our Operations—How We Measure Our Operating Performance” for a discussion of acquisition-related expenses, net of other gains, and its impact on our cash flow from operations.

(2) Our long-term strategy is to fund the payment of quarterly distributions to investors entirely from our operations. There can be no assurance that we will achieve this strategy. In periods where cash flows from operations are not sufficient to fund distributions, we fund any shortfall with cash on hand or proceeds from borrowings.

For the three months ended March 31, 2016 and the year ended December 31, 2015, our NAREIT-defined FFO was $26.1 million and $88.2 million, respectively, or 163% and 130% of our total distributions, respectively. NAREIT-defined FFO is an operating metric and should not be used as a liquidity measure. However, management believes the relationship between NAREIT-defined FFO and distributions may be meaningful for investors to better understand the sustainability of our operating performance compared to distributions made. The definition of NAREIT-defined FFO, a reconciliation to GAAP net income, and a discussion of NAREIT-defined FFO’s inherent limitations are provided below in “ – How We Measure Our Operating Performance.”

How We Measure Our Operating Performance

Funds From Operations

FFO Definition (“FFO”)

We believe that FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization expense. However, since real estate values have historically risen or fallen with market and other conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that consists of net income (loss), calculated in accordance with GAAP, plus real estate-related depreciation and amortization and impairment of depreciable real estate, less gains (or losses) from dispositions of real estate held for investment purposes.  

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The following table presents a reconciliation of FFO to net income (loss) for the three months ended March 31, 2016 and 2015, and the years ended December 31, 2015, 2014, 2013, 2012, and 2011 (amounts in thousands, except per share information). 

	For the Three Months Ended March 31,						For the Year Ended December 31,
	2016			2015			2015			2014			2013			2012			2011
Reconciliation of net earnings to FFO:
Net income (loss) attributable to common stockholders	$	43,782		$	123,583		$	124,255		$	29,192		$	52,468		$	(22,261	)	$	(57,680	)
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense		19,835			20,815			83,114			88,994			108,191			129,116			126,890
Gain on disposition of real property (1)		(41,400	)		(128,667	)		(134,218	)		(40,592	)		(74,306	)		(21,108	)		(13,588	)
Impairment of real estate property		587			1,400			8,124			9,500			2,600			5,700			23,500
Noncontrolling interests’ share of net income (loss)		4,456			8,618			7,404			4,802			4,002			(110	)		(6,886	)
Noncontrolling interests’ share of FFO		(3,080	)		(1,808	)		(6,509	)		(6,650	)		(7,739	)		(8,486	)		(6,999	)
FFO attributable to common shares-basic		24,180			23,941			82,170			85,246			85,216			82,851			65,237
FFO attributable to dilutive OP Units		1,878			1,662			6,001			6,077			6,575			6,947			4,810
FFO attributable to common shares-diluted	$	26,058		$	25,603		$	88,171		$	91,323		$	91,791		$	89,798		$	70,047
FFO per share-basic and diluted	$	0.15		$	0.13		$	0.47		$	0.48		$	0.48		$	0.46		$	0.35
Weighted average number of shares outstanding
Basic		163,954			179,317			175,938			178,273			178,196			181,982			183,813
Diluted		176,690			191,766			188,789			190,991			191,932			197,244			197,377

(1) Include amounts attributable to discontinued operations for periods presented of 2014 and 2013.

Company-Defined FFO

As part of its guidance concerning FFO, NAREIT has stated that the “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” As a result, modifications to FFO are common among REITs as companies seek to provide financial measures that meaningfully reflect the specific characteristics of their businesses. In addition to the NAREIT definition of FFO and other GAAP measures, we provide a Company-Defined FFO measure that we believe is helpful in assisting management and investors assess the sustainability of our operating performance. As described further below, our Company-Defined FFO presents a performance metric that adjusts for items that we do not believe to be related to our ongoing operations. In addition, these adjustments are made in connection with calculating certain of the Company’s financial covenants including its interest coverage ratio and fixed charge coverage ratio and therefore we believe this metric will help our investors better understand how certain of our lenders view and measure the financial performance of the Company and ultimately its compliance with these financial covenants. However, no single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity and results of operations.

Our Company-Defined FFO is derived by adjusting FFO for the following items: acquisition-related expenses, gains and losses associated with extinguishment of debt and financing commitments, and gains and losses on derivatives. Management’s evaluation of our future operating performance excludes these items based on the following economic considerations:

Acquisition-related expenses — For GAAP purposes, expenses associated with efforts to acquire real properties, including efforts related to acquisition opportunities that are not ultimately completed, are recorded to earnings. We believe by excluding acquisition-related expenses, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance, because these types of expenses are directly correlated to our investment activity rather than our ongoing operating activity.

Gains and losses on extinguishment of debt and financing commitments — Gains and losses on extinguishment of debt and financing commitments represent gains and losses incurred as a result of the early retirement of debt obligations and breakage costs and fees incurred related to certain of our derivatives and other financing commitments. Such gains and losses may be due to dispositions of assets or the repayment of debt prior to its contractual maturity. Our management believes that any such gains and losses are not related to our ongoing operations. Accordingly, we believe by excluding gains and losses on extinguishment of debt and financing commitments, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance.

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Unrealized gains and losses on derivatives — Unrealized gains and losses on derivatives represent the gains or losses on the fair value of derivative instruments due to hedge ineffectiveness. As these unrealized gains or losses relate to underlying long-term assets and liabilities, where we are not speculating or trading assets, our management believes that any such unrealized gains or losses are not reflective of our ongoing operations. Accordingly, we believe by excluding unrealized gains or losses on derivatives, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance.

We also believe that Company-Defined FFO allows investors and analysts to compare the performance of our portfolio with other REITs that are not currently affected by the adjusted items. In addition, as many other REITs adjust FFO to exclude the items described above, we believe that our calculation and reporting of Company-Defined FFO may assist investors and analysts in comparing our performance with that of other REITs. However, because Company-Defined FFO excludes items that are an important component in an analysis of our historical performance, such supplemental measure should not be construed as a complete historical performance measure and may exclude items that have a material effect on the value of our common stock.

The following table presents a reconciliation of Company-Defined FFO to FFO for the three months ended March 31, 2016 and 2015, and the years ended December 31, 2015, 2014, 2013, 2012, and 2011 (amounts in thousands, except per share information). 

	For the Three Months Ended March 31,						For the Year Ended December 31,
	2016			2015			2015			2014			2013			2012			2011
Reconciliation of FFO to Company-Defined FFO:
FFO attributable to common shares-basic	$	24,180		$	23,941		$	82,170		$	85,246		$	85,216		$	82,851		$	65,237
Add (deduct) our adjustments:
Acquisition-related expenses		51			425			2,644			1,205			536			325			610
(Gain) loss on extinguishment of debt and financing commitments		(5,136	)		896			1,168			63			2,507			5,675			95
Loss (gain) on derivatives		—			11			(3	)		—			—			19			85
Other-than-temporary impairment and related amortization on securities		—			—			—			—			—			—			3,495
Provision for loss on debt related investments		—			—			—			—			—			—			23,037
Noncontrolling interests’ share of     NAREIT-defined FFO		3,080			1,808			6,509			6,650			7,739			8,486			6,999
Noncontrolling interests’ share of Company-Defined FFO		(1,754	)		(1,894	)		(6,769	)		(6,734	)		(7,954	)		(8,954	)		(8,878	)
Company-Defined FFO attributable to common shares-basic		20,421			25,187			85,719			86,430			88,044			88,402			90,680
Company-Defined FFO attributable to dilutive OP Units		1,586			1,749			6,261			6,161			6,790			7,414			6,689
Company-Defined FFO attributable to common shares-diluted	$	22,007		$	26,936		$	91,980		$	92,591		$	94,834		$	95,816		$	97,369
Company-Defined FFO per share-basic and diluted	$	0.12		$	0.14		$	0.49		$	0.48		$	0.49		$	0.49		$	0.49
Weighted average number of shares outstanding
Basic		163,954			179,317			175,938			178,273			178,196			181,982			183,813
Diluted		176,690			191,766			188,789			190,991			191,932			197,244			197,377

Limitations of FFO and Company-Defined FFO

FFO (both NAREIT-defined and Company-Defined) is presented herein as a supplemental financial measure and has inherent limitations. We do not use FFO or Company-Defined FFO as, nor should they be considered to be, an alternative to net income (loss) computed under GAAP as an indicator of our operating performance, or as an alternative to cash from operating activities computed under GAAP, or as an indicator of liquidity or our ability to fund our short or long-term cash requirements, including distributions to stockholders. Management uses FFO and Company-Defined FFO as indications of our future operating performance and as a guide to making decisions about future investments. Our FFO and Company-Defined FFO calculations do not present, nor do we intend them to present, a complete picture of our financial condition and operating performance. In addition, other REITs may define FFO and an adjusted FFO metric differently and choose to treat acquisition-related expenses and potentially other accounting line items in a manner different from us due to specific differences in investment strategy or for other reasons; therefore, comparisons with other REITs may not be meaningful.

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Our Company-Defined FFO calculation is limited by its exclusion of certain items previously discussed, but we continuously evaluate our investment portfolio and the usefulness of our Company-Defined FFO measure in relation thereto. We believe that net income (loss) computed under GAAP remains the primary measure of performance and that FFO or Company-Defined FFO are only meaningful when they are used in conjunction with net income (loss) computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and operating performance.

Specifically with respect to fees and expenses associated with the acquisition of real property, which are excluded from Company-Defined FFO, such fees and expenses are characterized as operational expenses under GAAP and included in the determination of net income (loss) and income (loss) from operations, both of which are performance measures under GAAP. The purchase of operating properties is a key strategic objective of our business plan focused on generating operating income and cash flow in order to fund our obligations and to make distributions to investors. However, as the corresponding acquisition-related costs are paid in cash, these acquisition-related costs negatively impact our GAAP operating performance and our GAAP cash flows from operating activities during the period in which efforts are undertaken to acquire properties. In addition, if we acquire a property after all offering proceeds from our public offerings have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, such costs will then be paid from other sources of cash such as additional debt proceeds, operational earnings or cash flow, net proceeds from the sale of properties, or other ancillary cash flows. Among other reasons as previously discussed, the treatment of acquisition-related costs is a reason why Company-Defined FFO is not a complete indicator of our overall financial performance, especially during periods in which efforts are undertaken to acquire properties. Note that, pursuant to our valuation procedures, acquisition-related expenses result in an immediate decrease to our NAV.

FFO and Company-Defined FFO may not be useful performance measures as a result of the various adjustments made to net income for the charges described above to derive such performance measures. Specifically, we intend to operate as a perpetual-life vehicle and, as such, it is likely for our operating results to be negatively affected by certain of these charges in the future, specifically acquisition-related expenses, as it is currently contemplated as part of our business plan to acquire additional investment properties which would result in additional-acquisition related expenses. Any change in our operational structure would cause the non-GAAP measure to be re-evaluated as to the relevance of any adjustments included in the non-GAAP measure. As a result, we caution investors against using FFO or Company-Defined FFO to determine a price to earnings ratio or yield relative to our NAV.

Further, FFO or Company-Defined FFO is not comparable to the performance measure established by the Investment Program Association (the “IPA”), referred to as “modified funds from operations,” or “MFFO,” as MFFO makes further adjustments including certain mark-to-market items and adjustments for the effects of straight-line rent. As such, FFO and Company-Defined FFO may not be comparable to the MFFO of non-listed REITs that disclose MFFO in accordance with the IPA standard. More specifically, Company-Defined FFO has limited comparability to the MFFO and other adjusted FFO metrics of those REITs that do not intend to operate as perpetual-life vehicles as such REITs have a defined acquisition stage. Because we do not have a defined acquisition stage, we may continue to acquire real estate and real estate-related investments for an indefinite period of time. Therefore, Company-Defined FFO may not reflect our future operating performance in the same manner that the MFFO or other adjusted FFO metrics of a REIT with a defined acquisition stage may reflect its operating performance after the REIT had completed its acquisition stage.

Neither the Commission nor any other regulatory body, nor NAREIT, has adopted a set of standardized adjustments that includes the adjustments that we use to calculate Company-Defined FFO. In the future, the Commission or another regulatory body, or NAREIT, may decide to standardize the allowable adjustments across the non-listed REIT industry at which point we may adjust our calculation and characterization of Company-Defined FFO. 

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FEES AND EXPENSES PAYABLE TO OUR ADVISOR, OUR DEALER MANAGER AND THEIR AFFILIATES

The table below provides information regarding fees and expenses paid or payable to our Advisor, our Dealer Manager, and their affiliates in connection with their services provided to us. The table includes amounts incurred and payable for the three months ended March 31, 2016 and the year ended December 31, 2015 (amounts in thousands). Please refer to the section of the Prospectus entitled “The Advisor and the Advisory Agreement—Summary of Fees, Commissions and Reimbursements” for more information with respect to the year ended December 31, 2015.  

	Incurred For the Three Months Ended March 31, 2016		Payable as of March 31, 2016		Incurred For the Year Ended December 31, 2015		Payable as of December 31, 2015
Advisory fees (1)	$	3,765	$	1,183	$	17,083	$	2,476
Other reimbursements paid to our Advisor and affiliates (2)		2,177		747		9,008		2,533
Other reimbursements paid to our Dealer Manager		51		—		441		—
Advisory fees related to the disposition of     real properties		1,807		—		4,962		—
Development management fee		21		8		88		37
Primary dealer fee (3)		—		—		2,540		—
Selling commissions, dealer manager,     and distribution fees		152		36		422		35
Total	$	7,973	$	1,974	$	34,544	$	5,081

(1) Include approximately $283,000 and $1.1 million that we were not obligated to pay in consideration of the issuance of Company RSUs to our Advisor for the three months ended March 31, 2016 and the year ended December 31, 2015, respectively. The Restricted Stock Unit Agreements with our Advisor are discussed further in Note 9 to our financial statements beginning on page F-1 of this Supplement.

(2) Includes $42,000 and $320,000 to reimburse a portion of the salary and benefits for our principal executive officer, Jeffrey L. Johnson, for the three months ended March 31, 2016 and the year ended December 31, 2015, respectively, and $87,000 and $555,000 to reimburse a portion of the salary and benefits for our principal financial officer, M. Kirk Scott, for services provided to us, for the three months ended March 31, 2016 and the year ended December 31, 2015, respectively, for which we do not pay our Advisor a fee. Our principal executive officer and principal financial officer receive significant additional compensation from our Advisor or its affiliates that we do not reimburse.

(3) Include primary dealer fees we paid to our Dealer Manager based on the gross proceeds raised by participating broker-dealers pursuant to certain selected dealer agreements. Of the primary dealer fee earned during the years ended December 31, 2015, our Dealer Manager reallowed approximately $2.3 million to participating third-party broker-dealers and retained approximately $254,000.

Please also see Note 9 to our financial statements beginning on page F-1 of this Supplement for information regarding restricted stock grants to certain employees of our Advisor and its affiliates, none of which are our named executive officers. 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF 

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Dividend Capital Diversified Property Fund Inc. is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real property and real estate related investments.

We believe we have operated in such a manner as to qualify as a REIT for federal income tax purposes, commencing with the taxable year ended December 31, 2006, when we first elected REIT status commencing with the taxable year ended December 31, 2006, when we first elected REIT status. We utilize an UPREIT organizational structure to hold all or substantially all of our assets through our Operating Partnership. Furthermore, our Operating Partnership wholly owns a taxable REIT subsidiary, DCTRT Leasing Corp., through which we execute certain business transactions that might otherwise have an adverse impact on our status as a REIT if such business transactions were to occur directly or indirectly through our Operating Partnership. We are an externally managed REIT and have no employees. Our day-to-day activities are managed by our Advisor, a related party, under the terms and conditions of the Advisory Agreement.

We primarily earn revenue from rent received from customers under long-term operating leases at our properties, including reimbursements from customers for certain operating costs. Our primary expenses include rental expenses, depreciation and amortization expenses, general and administrative expenses, asset management and advisory fees, and interest expenses.

As of March 31, 2016, our operating properties were located in 20 geographic markets in the United States. We also had approximately $15.6 million in net debt related investments as of March 31, 2016, all of which are structured as mortgage notes. The following table summarizes our investments in real properties, by segment, using our estimated fair value of these investments as of March 31, 2016 (amounts in thousands). 

	Geographic Markets		Number of Properties		Net Rentable Square Feet		% Leased (1)			Aggregate Fair Value
Office properties		13		17		3,581		91.3	%	$	1,184,385
Industrial properties		3		6		1,909		80.4	%		85,650
Retail properties		9		34		3,763		94.1	%		951,700
Real properties		20 (2)		57		9,253		90.2	%	$	2,221,735

(1) Percentage leased is based on executed leases as of March 31, 2016.

(2) The total number of our geographic markets does not equal the sum of the number of geographic markets by segment, as we have more than one segment in certain geographic markets.

Consistent with our investment strategy, we currently have three business segments, consisting of investments in (i) office property, (ii) industrial property, and (iii) retail property. We also have investments in real estate related-debt investments (which we refer to as “debt-related investments”). For a discussion of our business segments and the associated revenue and net operating income by segment, see Note 11 to our financial statements beginning on page F-1 of this Supplement.

We may target investments in four primary property categories of office, industrial, retail and multifamily. Although we may own properties in each of these categories, we are not tied to specific allocation targets and we may not always have significant holdings, or any holdings at all, in each category. For example, we do not currently own multifamily investments, although we intend to consider multifamily investment opportunities in the future. Also, through the disposition of assets, our ownership of industrial assets has declined to less than 5% of our portfolio as of March 31, 2016. Our recent investment strategy has primarily been focused on multi-tenant office and necessity-oriented retail investments located in what we believe are strong markets poised for long-term growth. We currently intend that our near term investment strategy will continue to focus on these multi-tenant office and necessity-oriented retail investments. We may also look for opportunities to increase our holdings of industrial assets over the next year. However, there can be no assurance that we will be successful in this investment strategy, including with respect to any particular asset class. To a lesser extent we may invest in other types of real estate including, but not limited to, hospitality, medical offices, student housing and unimproved land. We anticipate that the majority of our real property investments will be made in the United States, although we may also invest in Canada and Mexico, and potentially elsewhere on a limited basis, to the extent that opportunities exist that may help us meet our investment objectives.

Any future and near-term obligations are expected to be funded primarily through the use of cash on hand, cash generated from operations, proceeds from our public offerings and other equity offerings, proceeds from the sale of existing investments, and the issuance and assumption of debt obligations.

· Cash on hand — As of March 31, 2016, we had approximately $11.7 million of cash and cash equivalents.

· Cash available under our credit facility — As of March 31, 2016, the unused portion of our line of credit was approximately $315.8 million, all of which was available to us.

· Cash generated from operations — During the three months ended March 31, 2016, we generated approximately $15.2 million from operations of our real properties and income from debt related investments.

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· Proceeds from offerings of equity securities — We currently maintain a public offering of our shares of common stock. During the three months ended March 31, 2016, we raised approximately $10.1 million in proceeds from the sale of Class A, W, and I shares in our current follow-on public offering, including approximately $1.3 million under the distribution reinvestment plan. Additionally, during the three months ended March 31, 2016, we received approximately $3.8 million in proceeds from the Class E DRIP Offering.

· Proceeds from sales of existing investments — During the three months ended March 31, 2016, we sold three operating properties. After buyer credits, closing costs, and the assumption of a related mortgage note, we received net proceeds of $176.0 million.

We believe that our existing cash balance, cash generated from operations, proceeds from our public offerings and our ability to sell investments and to issue debt obligations remains adequate to meet our expected capital obligations for the next twelve months.

Significant Transactions During the Three Months Ended March 31, 2016

Investment Activity

Real Property Dispositions

During the three months ended March 31, 2016, we completed the disposition of three properties aggregating approximately 880,000 net rentable square feet for an aggregate sales price of approximately $186.3 million. For additional discussion of our real property dispositions, see Note 3 to our financial statements beginning on page F-1 of this Supplement.

Financing Activity

Self-Tender Offer

On March 14, 2016, we completed a self-tender offer, pursuant to which we accepted for purchase approximately 4.1 million unclassified shares of common stock, which we refer to as “Class E” shares, at a purchase price of $7.39 per share for an aggregate cost of approximately $30.0 million. We funded the purchase with a $30.0 million draw on our revolving credit facility.

Repayments of Mortgage Borrowings

During the three months ended March 31, 2016, we repaid three mortgage note borrowings in full with an aggregate balance of approximately $74.1 million at the time of the payoffs and a weighted average interest rate of 6.20%. We funded the repayments with proceeds from our revolving credit facility and proceeds from real property dispositions. For additional information on these repayments, see Note 5 to our financial statements beginning on page F-1 of this Supplement.

Net Asset Value Calculation

Our board of directors, including a majority of our independent directors, has adopted valuation procedures that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV on a daily basis. Altus Group U.S., Inc., the Independent Valuation Firm manages the fundamental element of the valuation process—the valuation of our real property portfolio. Our board of directors, including a majority of our independent directors, approved the Independent Valuation Firm.

The following table sets forth the components of NAV for the Company as of March 31, 2016 and December 31, 2015 (amounts in thousands except per share information). As used below, “Fund Interests” means our Class E shares, Class A shares, Class W shares, and Class I shares, along with the OP Units held by third parties, and “Aggregate Fund NAV” means the NAV of all of the Fund Interests. 

	As of March 31, 2016			As of December 31, 2015
Office properties	$	1,184,385		$	1,378,635
Industrial properties		85,650			90,250
Retail properties		951,700			950,925
Real properties	$	2,221,735		$	2,419,810
Debt related investments		15,596			15,722
Total Investments	$	2,237,331		$	2,435,532
Cash and other assets, net of other liabilities		(12,695	)		(14,069	)
Debt obligations		(945,053	)		(1,098,853	)
Outside investors’ interests		(3,320	)		(4,771	)
Aggregate Fund NAV	$	1,276,263		$	1,317,839
Total Fund Interests outstanding		173,445			176,490
NAV per Fund Interest	$	7.36		$	7.47

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When the fair value of our real estate assets is calculated for the purposes of determining our NAV per share, the calculation is done using the fair value methodologies detailed within the FASB Accounting Standards Codification under Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. In the determination of our NAV, the value of certain of our assets and liabilities are generally determined based on their carrying amounts under GAAP; however, those principles are generally based upon historic cost and therefore may not be determined in accordance with ASC Topic 820. Readers should refer to our financial statements for our net book value determined in accordance with GAAP from which one can derive our net book value per share by dividing our stockholders’ equity by shares of our common stock outstanding as of the date of measurement.

Our valuation procedures, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with GAAP, involve adjustments from historical cost. There are certain factors which cause NAV to be different from net book value on a GAAP basis. Most significantly, the valuation of our real estate assets, which is the largest component of our NAV calculation, will be provided to us by the Independent Valuation Firm on a daily basis. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. We generally do not undertake to mark-to-market our debt investments or real estate-related liabilities, but rather these assets and liabilities are usually included in our determination of NAV at amounts determined in accordance with GAAP, which amounts have been and could in the future be materially different from the amount of these assets and liabilities if we were to undertake to mark-to-market our debt. Also for NAV purposes, we mark-to-market our hedging instruments on a frequency that management determines to be practicable under the circumstances and currently we seek to mark-to-market our hedging instruments on a weekly basis. However, our NAV policies and procedures allow for that frequency to change to be more or less frequent. Other examples that will cause our NAV to differ from our GAAP net book value include the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV, and, for purposes of determining our NAV, the assumption of a value of zero in certain instances where the balance of a loan exceeds the value of the underlying real estate properties, where GAAP net book value would reflect a negative equity value for such real estate properties, even if such loans are non-recourse. Third party appraisers may value our individual real estate assets using appraisal standards that deviate from fair value standards under GAAP. The use of such appraisal standards may cause our NAV to deviate from GAAP fair value principles. We did not develop our valuation procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP.

We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on your ability to redeem shares under our share redemption programs or tender pursuant to self-tender offers and our ability to suspend or terminate our share redemption programs or tender pursuant to self-tender offers at any time. Our NAV generally does not consider exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if our assets and liabilities were liquidated or sold. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.

Please note that our NAV is not a representation, warranty or guarantee that: (1) we would fully realize our NAV upon a sale of our assets; (2) shares of our common stock would trade at our per share NAV on a national securities exchange; and (3) a stockholder would be able to realize the per share NAV if such stockholder attempted to sell his or her shares to a third party.

The March 31, 2016 valuation for our real properties was provided by the Independent Valuation Firm in accordance with our valuation procedures and determined starting with the appraised value. The aggregate real property valuation of $2.22 billion compares to a GAAP basis of real properties (before accumulated amortization and depreciation and the impact of intangible lease liabilities) of $2.07 billion, representing an increase of approximately $150.6 million or 7.3%. Certain key assumptions that were used by our Independent Valuation Firm in the discounted cash flow analysis are set forth in the following table based on weighted averages by property type.  

	Office			Industrial			Retail			Weighted Average Basis
Exit capitalization rate		6.67	%		7.31	%		6.50	%		6.62	%
Discount rate / internal rate of return (“IRR”)		7.35	%		8.13	%		7.02	%		7.24	%
Annual market rent growth rate		3.17	%		2.98	%		2.94	%		3.06	%
Average holding period (years)		10.8			10.7			10.3			10.6

A change in the rates used would impact the calculation of the value of our real properties. For example, assuming all other factors remain constant, an increase in the weighted-average annual discount rate/IRR and the exit capitalization rate of 0.25% would reduce the value of our real properties by approximately 1.96% and 2.17%, respectively.

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The following table sets forth the quarterly changes to the components of NAV for the Company and the reconciliation of NAV changes for each class of shares (amounts in thousands, except per share and footnoted information): 

	Total			Class E Common Stock			Class A Common Stock	Class W Common Stock			Class I Common Stock	Class E OP Units
NAV as of December 31, 2015	$	1,317,839		$	1,025,115		$12,715	$	13,522		$170,876	$	95,611
Fund level changes to NAV
Realized/unrealized losses on net assets		(25,662	)		(19,918	)	(266)		(298	)	(3,338)		(1,842	)
Income accrual		26,372			20,438		270		302		3,461		1,901
Dividend accrual		(15,802	)		(12,324	)	(127)		(160	)	(2,045)		(1,146	)
Advisory fee		(3,758	)		(2,912	)	(39)		(43	)	(493)		(271	)
Performance based fee		—			—		—		—		—		—
Class specific changes to NAV
Dealer Manager fee		(85	)		—		(20)		(22	)	(43)		—
Distribution fee		(17	)		—		(17)		—		—		—
NAV as of March 31, 2016
before share/unit sale/redemption activity	$	1,298,887		$	1,010,399		$12,516	$	13,301		$168,418	$	94,253
Share/unit sale/redemption activity
Shares/units sold		14,008			3,817		1,683		3,500		5,008		—
Shares/units redeemed		(36,632	)		(33,574	)	(9)		(40	)	(1,303)		(1,706	)
NAV as of March 31, 2016	$	1,276,263		$	980,642		$14,190	$	16,761		$172,123	$	92,547
Shares/units outstanding as of December 31, 2015		176,490			137,275		1,703		1,811		22,893		12,808
Shares/units sold		1,886			513		227		472		674		—
Shares/units redeemed		(4,931	)		(4,518	)	(1)		(5	)	(176)		(231	)
Shares/units outstanding as of March 31, 2016		173,445			133,270		1,929		2,278		23,391		12,577
NAV per share/unit as of December 31, 2015				$	7.47		$7.47	$	7.47		$7.47	$	7.47
Change in NAV per share/unit					(0.11	)	(0.11)		(0.11	)	(0.11)		(0.11	)
NAV per share/unit as of March 31, 2016				$	7.36		$7.36	$	7.36		$7.36	$	7.36

How We Measure Our Operating Performance

Funds From Operations

FFO Definition (“FFO”)

For definitions of FFO and Company-Defined FFO and other important information regarding FFO and Company-Defined FFO, see “Selected Information Regarding Our Operations — How We Measure Our Operating Performance” above.

The following unaudited table presents a reconciliation of FFO to net income (loss) for the three months ended March 31, 2016 and 2015 (amounts in thousands, except per share information).

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	For the Three Months Ended
	March 31,
	2016			2015
Reconciliation of net earnings to FFO:
Net income attributable to common stockholders	$	43,782		$	123,583
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense		19,835			20,815
Gain on disposition of real property		(41,400	)		(128,667	)
Impairment of real estate property		587			1,400
Noncontrolling interests’ share of net income		4,456			8,618
Noncontrolling interests’ share of FFO		(3,080	)		(1,808	)
FFO attributable to common shares-basic		24,180			23,941
FFO attributable to dilutive OP Units		1,878			1,662
FFO attributable to common shares-diluted	$	26,058		$	25,603
FFO per share-basic and diluted	$	0.15		$	0.13
Weighted average number of shares outstanding
Basic		163,954			179,317
Diluted		176,690			191,766

The following unaudited table presents a reconciliation of Company-Defined FFO to FFO for the three months ended March 31, 2016 and 2015 (amounts in thousands, except per share information). 

	For the Three Months Ended
	March 31,
	2016			2015
Reconciliation of FFO to Company-Defined FFO:
FFO attributable to common shares-basic	$	24,180		$	23,941
Add (deduct) our adjustments:
Acquisition-related expenses		51			425
(Gain) loss on extinguishment of debt and financing commitments		(5,136	)		896
Loss on derivatives		—			11
Noncontrolling interests’ share of NAREIT-defined FFO		3,080			1,808
Noncontrolling interests’ share of Company-Defined FFO		(1,754	)		(1,894	)
Company-Defined FFO attributable to common shares-basic		20,421			25,187
Company-Defined FFO attributable to dilutive OP Units		1,586			1,749
Company-Defined FFO attributable to common shares-diluted	$	22,007		$	26,936
Company-Defined FFO per share-basic and diluted	$	0.12		$	0.14
Weighted average number of shares outstanding
Basic		163,954			179,317
Diluted		176,690			191,766

Net Operating Income (“NOI”)

We also use NOI as a supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and debt related investments and excludes certain items that are not considered to be controllable in connection with the management of each property, such as other-than-temporary impairment, losses related to provisions for losses on debt related investments, gains or losses on derivatives, acquisition-related expenses, gains and losses on extinguishment of debt and financing commitments, interest income, depreciation and amortization, general and administrative expenses, advisory fees, interest expense and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our operating financial performance as a whole, since it does exclude such items that could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income (loss), as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. We present NOI in the tables below, and include a reconciliation to GAAP in Note 11 to our financial statements beginning on page F-1 of this Supplement.

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Our Operating Results

Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015

Our results of rental activities are presented in two groups: (i) all operating properties that we acquired prior to January 1, 2015 and owned through March 31, 2016 (the “Same Store Portfolio”), providing meaningful comparisons for the three months ended March 31, 2016 and the three months ended March 31, 2015, and (ii) all other operating properties, which were acquired or disposed during the same period (the “Non-Same Store Portfolio”). The Same Store Portfolio includes 49 properties, comprising approximately 7.9 million square feet. The following table illustrates the changes in rental revenues, rental expenses, debt-related investment income, and net operating income for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 (dollar amounts in thousands).

	For the Three Months Ended March 31,
	2016			2015			$ Change			% Change
Revenue
Base rental revenue - Same Store Portfolio (1)	$	35,413		$	35,185		$	228			1	%
Average % leased		89.1	%		91.4	%		-2.3	%		-2	%
Other rental revenue - Same Store Portfolio		6,852			10,557			(3,705	)		-35	%
Total rental revenue - Same Store Portfolio		42,265			45,742			(3,477	)		-8	%
Rental revenue - Non-Same Store Portfolio (2)		13,279			13,637			(358	)		-3	%
Total rental revenue	$	55,544		$	59,379		$	(3,835	)		-6	%
Rental Expenses
Same Store Portfolio	$	11,953		$	13,402		$	(1,449	)		-11	%
Non-Same Store Portfolio		4,365			1,727			2,638			153	%
Total rental expenses	$	16,318		$	15,129		$	1,189			8	%
Net Operating Income
Real property - Same Store Portfolio	$	30,312		$	32,340		$	(2,028	)		-6	%
Real property - Non-Same Store Portfolio (2)		8,914			11,910			(2,996	)		-25	%
Total net operating income (3)	$	39,226		$	44,250		$	(5,024	)		-11	%

(1) Base rental revenue represents contractual base rental revenue earned by us from our tenants and does not include the impact of certain GAAP adjustments to rental revenue, such as straight-line rent adjustments, amortization of above-market intangible lease assets or the amortization of below-market lease intangible liabilities. Such GAAP adjustments and other rental revenue such as expense recovery revenue are included in the line item referred to as “other rental revenue.”

(2) Our same store NOI includes certain non-cash GAAP adjustments for rental revenue for straight line rent and amortization of above market lease assets and below market lease liabilities that caused a (decrease) or increase to GAAP NOI of approximately ($571,000) and $32,000 for the three months ended March 31, 2016 and 2015, respectively.

(3) For a discussion as to why we view net operating income to be an appropriate supplemental performance measure, refer to “—How We Measure Our Operating Performance—Net Operating Income (“NOI”)” above. See also Note 11 to our financial statements beginning on page F-1 of this Supplement.

Net Operating Income

Base Rental Revenue - Same Store

The table below presents the factors contributing to the increase in our same store base rental revenue for the three months ended March 31, 2016 and 2015 (dollar amounts other than annualized base rent per square foot in thousands): 

Same Store Portfolio	Base Rent for the Three Months Ended March 31,							Average % Leased for the Three Months Ended March 31,						Annualized Base Rent per Square Foot for the Three Months Ended March 31 (1),
	2016		2015		$ Change			2016			2015			2016		2015
Office	$	21,471	$	21,686	$	(215	)		89.7	%		96.1	%	$	34.31	$	32.35
Industrial		1,339		1,294		45			80.4	%		80.3	%		3.49		3.38
Retail		12,603		12,205		398			93.8	%		93.9	%		16.94		16.39
Total base rental revenue - same store	$	35,413	$	35,185	$	228			89.1	%		91.4	%	$	20.20	$	19.57

(1) Represents contractual base rent and does not include the impact of tenant concessions, such as free rent and tenant reimbursements.

Base rental revenue in our same store portfolio increased for the three months ended March 31, 2016, compared to the same period in 2015, primarily due to an increase in average base rent per square foot, partially offset by (i) a decrease in the average leased square feet for the three months ended March 31, 2016 driven primarily by the vacancy of a 178,000 square feet single tenant office property in March 2015 located in the Washington, DC market, compared to the same period in 2015, and (ii) rent concessions that we granted to our tenants since March 31, 2015.

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Other Rental Revenue - Same Store

Same store other rental revenue decreased for the three months ended March 31, 2016, compared to the same period in 2015, primarily due to (i) a $1.4 million lease termination payment related to a tenant in our retail portfolio that we received during the three months ended March 31, 2015, (ii) a $1.8 million decrease in recoverable revenue due to a decrease in snow removal costs incurred by properties in our Greater Boston market due to a more normal winter, (iii) a decrease in below market rent adjustment due to lease expirations since March 31, 2015, and (iv) a decrease in our straight line rent adjustment within our same store portfolio due to rent increases. 

Rental Expenses - Same Store

The table below presents the amounts recorded and changes in rental expense of our same store portfolio for the three months ended March 31, 2016 and 2015 (dollar amounts in thousands): 

	For the Three Months Ended March 31,
	2016		2015		$ Change			% Change
Real estate taxes	$	4,696	$	4,530	$	166			3.7	%
Repairs and maintenance		3,334		5,079		(1,745	)		-34.4	%
Utilities		1,687		1,749		(62	)		-3.5	%
Property management fees		923		879		44			5.0	%
Insurance		270		296		(26	)		-8.8	%
Other		1,043		869		174			20.0	%
Total same store rental expense	$	11,953	$	13,402	$	(1,449	)		-10.8	%

The decrease in repairs and maintenance expenses of the Same Store Portfolio for the three months ended March 31, 2016, compared to the same period in 2015, is primarily attributable to a decrease in snow removal costs incurred by properties in our Greater Boston market.

Real Property – Non-Same Store Portfolio

The decrease in rental revenue and NOI in our Non-Same Store Portfolio resulted from our disposition of three and 17 real properties during 2016 and 2015, respectively, partially offset by acquisitions of eight real properties during 2015. See our discussion under “—Significant Transactions During the Three Months Ended March 31, 2016—Investment Activity” for further discussion of our disposition activities.

Debt Related Income

Debt related income decreased for the three months ended March 31, 2016, compared to the same period in 2015. The decrease is primarily attributable to the repayments of debt related investments of approximately $81.5 million during 2015, partially offset by the investment of approximately $3.7 million in debt related investments in the same period.

Other Operating Expenses

Real Estate Depreciation and Amortization Expense

Depreciation and amortization expense decreased by $980,000, or 5%, for the three months ended March 31, 2016, compared to the same period in 2015, primarily due to our disposition of real properties during 2015.

Advisory Fees

The decrease in advisory fees primarily resulted from the common stock redemptions pursuant to our self-tender offerings in 2015. See Note 9 to our financial statements beginning on page F-1 of this Supplement for further discussion of all fees and reimbursements that we paid to our Advisor during the three months ended March 31, 2016 and 2015.

- 24 - 

Impairment of Real Estate Property

During the three months ended March 31, 2016, we recorded a $587,000 impairment charge related to 40 Boulevard, a consolidated office property located in the Chicago, IL market, which we acquired in January 2007 and we held through a joint venture in which we are not the managing partner (“40 Boulevard”). We had an 80% ownership interest in 40 Boulevard. We sold 40 Boulevard in March 2016. Prior to the disposition, the net book value of 40 Boulevard exceeded the contract sales price less the cost to sell by approximately $587,000. Accordingly, we recorded an impairment to reduce the net book value of the property to our estimate of its fair value less the cost to sell.

During the three months ended March 31, 2015, we recorded a $1.4 million impairment related to one of our wholly-owned retail properties in the Pittsburgh, PA market, which was classified as held for sale as of March 31, 2015. As of March 31, 2015, the net book value of this retail property exceeded our estimate of the fair value of the property less the cost to sell by $1.4 million. Accordingly, we recorded an impairment to reduce the net book value of the property to our estimate of its fair value less the cost to sell.

In the calculation of our NAV, our real estate assets are carried at fair value using valuation methodologies consistent with ASC Topic 820. As a result, the timing of valuation changes recorded in our NAV will not necessarily be the same as for impairment charges recorded to our financial statements prepared pursuant to GAAP.

Other Income (Expenses)

Interest Expense

Interest expense decreased for the three months ended March 31, 2016, compared to the same period in 2015, primarily due to lower average mortgage note borrowings during the three months ended March 31, 2016, and the full repayment of our other secured borrowings and financing obligations during 2015. The following table further describes our interest expense by debt obligation, and includes amortization of deferred financing costs, amortization related to our derivatives, and amortization of discounts and premiums for the three months ended March 31, 2016 and 2015 (amounts in thousands): 

	For the Three Months Ended March 31,
Debt Obligation	2016		2015
Mortgage notes	$	6,846	$	10,600
Unsecured borrowings		4,115		2,809
Other secured borrowings		—		318
Financing obligations		—		254
Total interest expense	$	10,961	$	13,981

Gain (Loss) on Extinguishment of Debt and Financing Commitments

During the three months ended March 31, 2016 and March 31, 2015, we had a gain of approximately $5.1 million and a loss of approximately $896,000 on extinguishment of debt and financing commitments, respectively. The gain in 2016 resulted from the extinguishment of a $5.1 million contingently payable mortgage note that was not ultimately required to be repaid. The loss in 2015 primarily resulted from deferred financing costs written off due to the amendment and restatement of our credit facility on January 13, 2015. See Note 5 to our financial statements beginning on page F-1 of this Supplement for more information regarding our repayment of mortgage notes during the three months ended March 31, 2016 and the recast of our credit facility during the three months ended March 31, 2015

Gain on Sale of Real Property

During the three months ended March 31, 2016 and 2015, we recorded gain on sale of real property of approximately $41.4 million and $128.7 million, respectively. For a detailed discussion of the real properties we disposed of during the three months ended March 31, 2016 and 2015, see Note 3 to our financial statements beginning on page F-1 of this Supplement.

Liquidity and Capital Resources

Liquidity Outlook

We believe our existing cash balance, our available credit under our revolving credit facilities, cash from operations, additional proceeds from our public offerings, proceeds from the sale of existing investments, and prospective debt or equity issuances will be sufficient to meet our liquidity and capital needs for the foreseeable future, including the next 12 months. Our capital requirements over the next 12 months are anticipated to include, but are not limited to, operating expenses, distribution payments, debt service payments, including debt maturities of approximately $253.9 million, of which approximately $106.3 million are subject to extension options beyond March 31, 2017, redemption payments, issuer tender offers, and acquisitions of real property and debt related investments. Subsequent to March 31, 2016, we repaid approximately $79.4 million of debt that was scheduled to mature over the next 12 months. Borrowings that are subject to extension options are also subject to certain lender covenants and restrictions that we must meet to extend the initial maturity date. We currently believe that we will qualify for these extension options. However, we cannot guarantee that we will meet the requirements to extend the notes upon initial maturity. In the event that we do not qualify to extend the notes, we expect to repay them with proceeds from new borrowings or available proceeds from our revolving credit facility.

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In order to maintain a reasonable level of liquidity for redemptions of Class A, Class W and Class I shares pursuant to our Second Amended and Restated Class A, W and I Share Redemption Program (the “Class AWI SRP”), we intend to generally maintain under normal circumstances the following aggregate allocation to sources of liquidity, which include liquid assets and capacity under our borrowing facilities: (1) 10% of the aggregate NAV of our outstanding Class A, Class W and Class I shares up to $1 billion of collective Class A, Class W and Class I share NAV, and (2) 5% of the aggregate NAV of our outstanding Class A, Class W and Class I shares in excess of $1 billion of collective Class A, Class W and Class I share NAV. However, as set forth in the Class AWI SRP, no assurance can be given that we will maintain this allocation to liquid assets. Our board of directors has the right to modify, suspend or terminate our Class AWI SRP if it deems such action to be in the best interest of our stockholders. As of March 31, 2016, the aggregate NAV of our outstanding Class A, Class W and Class I shares was approximately $203.1 million.

We calculate our leverage for reporting purposes as our total borrowings, calculated on a GAAP basis, divided by the fair value of our real property and debt related investments. Based on this methodology, as of March 31, 2016, our leverage was 42.2%. There are other methods of calculating our overall leverage ratio that may differ from this methodology, such as the methodology used in determining our compliance with corporate borrowing covenants.

As of March 31, 2016, we had approximately $11.7 million of cash and cash equivalents compared to $15.8 million as of December 31, 2015. The following discussion summarizes the sources and uses of our cash during the three months ended March 31, 2016.

Operating Activities

Net cash provided by operating activities decreased by approximately $10.3 million to approximately $15.2 million for the three months ended March 31, 2016 from approximately $25.6 million for the same period in 2015. The decrease is primarily due to (i) a decrease in NOI as discussed previously under “Our Operating Results”, (ii) a decrease in payments received from our debt related investments due to repayments of debt related investments during 2015, and (iii) unfavorable changes in working capital including a $2.5 million increase in payments made for property taxes primarily resulting from our acquisitions of two real properties located in the Austin, TX market during 2015, and a $895,000 increase in payments made for our performance-based fees to our Advisor as a result of an increase in our total weighted average return to 9.4% in 2015 from 8.6% in 2014.

 - 26 -

Lease Expirations

Our primary source of funding for our property-level operating expenses and debt service payments is rent collected pursuant to our tenant leases. Our operating portfolio was approximately 90.2% leased as of March 31, 2016, compared to approximately 89.5% as of March 31, 2015. Our properties are generally leased to tenants for terms ranging from three to ten years. As of March 31, 2016, the weighted average remaining term of our leases was approximately 4.2 years, based on annualized base rent, and 4.6 years, based on leased square footage. The following is a schedule of expiring leases for our consolidated operating properties by annualized base rent and square footage as of March 31, 2016 and assuming no exercise of lease renewal options (dollar amounts and square footage in thousands): 

	Lease Expirations
Year (1)		Number of Leases Expiring		Annualized Base Rent (2)	%		Square Feet	%
2016 (3)		70	$	4,436	2.7	%	277	3.3	%
2017		89		43,655	26.3	%	1,389	16.7	%
2018		118		12,989	7.8	%	638	7.5	%
2019		101		24,334	14.6	%	1,208	14.5	%
2020		105		23,521	14.2	%	1,193	14.3	%
2021		55		16,670	10.0	%	1,598	19.2	%
2022		30		9,040	5.4	%	507	6.1	%
2023		33		15,772	9.5	%	641	7.7	%
2024		23		4,826	2.9	%	322	3.9	%
2025		14		3,529	2.1	%	191	2.3	%
Thereafter		25		7,437	4.5	%	375	4.5	%
Total		663	$	166,209	100.0	%	8,339	100.0	%

(1) The lease expiration year does not include the consideration of any renewal or extension options. Also, the lease expiration year is based on noncancellable lease terms and does not extend beyond any early termination rights that the tenant may have under the lease.

(2) Annualized base rent represents the annualized monthly base rent of leases executed as of March 31, 2016.

(3) Represents the number of leases expiring and annualized base rent for the remainder of 2016. Includes 10 leases with annualized base rent of approximately $251,000 that are on a month-to-month basis.

Our two most significant leases, together comprising approximately 25.4% of our annualized base rent as of March 31, 2016, will expire between January 2017 and September 2017. One of these leases includes 10 subleases comprising approximately 4.7% of our annualized base rent as of March 31, 2016, which are scheduled to expire between September 2020 and May 2026. Based on market information as of March 31, 2016, we have obtained third-party estimates that current market rental rates, on a weighted-average basis utilizing annualized base rent as of March 31, 2016, are approximately 15% lower than our in-place leases. Accordingly, if market rents do not increase significantly, replicating the cash flows from these leases would be very difficult. When the leases expire we may be forced to lower the rental rates or offer other concessions in order to attract new tenants. In addition, we could be required to expend substantial funds to construct new tenant improvements in the vacated space.

During the three months ended March 31, 2016, we signed new leases for approximately 24,000 square feet and renewal leases for approximately 51,000 square feet. Tenant improvements and leasing commissions related to these leases were approximately $1.4 million and $490,000, respectively, or $17.97 and $6.47 per square foot, respectively. Of the leases described above, approximately 50,000 square feet were considered comparable leases related to which we realized average straight line rent growth of 41.7%, and tenant improvements and incentives of approximately $24.37 per square foot. Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing the new lease.

Investing Activities

Net cash provided by investing activities decreased approximately $70.9 million to approximately $168.5 million for the three months ended March 31, 2016 from $239.4 million for the same period in 2015. The decrease is primarily due to (i) a $135.3 million decrease in proceeds from disposition of real properties, (ii) a $4.5 million decrease in principal collections on debt related investments, and (iii) a $4.4 million increase in capital expenditures in real property, partially offset by a $69.0 million decrease in cash paid to acquire operating properties.

Financing Activities

Net cash used in financing activities decreased approximately $81.4 million to approximately $187.8 million for the three months ended March 31, 2016 from $269.2 million for the same period in 2015. The decrease is primarily due to (i) a $79.0 million decrease in net repayments of our unsecured borrowings, (ii) a $53.3 million decrease in cash paid for defeasance of mortgage note borrowings, partially offset by (i) a $35.2 million increase in cash paid for mortgage note repayments, and (ii) a $22.3 million increase in cash paid for redemption of common shares primarily due to the repurchase of our common shares pursuant to a self-tender offer.

During the three months ended March 31, 2016 and 2015, we raised approximately $10.1 million and $6.6 million in proceeds from the sale of Class A, W, and I shares, respectively, including approximately $1.3 million and $619,000 under the distribution reinvestment plan, respectively. We have offered and will continue to offer Class E shares of common stock through the Class E DRIP Offering. The amount raised under the Class E DRIP Offering decreased by approximately $831,000 to approximately $3.8 million for the three months ended March 31, 2016, from approximately $4.6 million for the same period in 2015. In addition, during the three months ended March 31, 2015, we raised approximately $7.3 million from OP Units issued in a real estate transaction.

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Debt Maturities

Ten of our mortgage notes with an aggregate outstanding balance as of March 31, 2016 of approximately $414.7 million have initial maturities before January 1, 2018. Of these borrowings, one mortgage note with an outstanding balance of approximately $106.3 million as of March 31, 2016 has extension options beyond December 31, 2017. These extension options are subject to certain lender covenants and restrictions that we must meet to extend the maturity date. We currently believe that we will qualify for our extension options. However, we cannot guarantee that we will meet the requirements to extend the notes upon initial maturity. In the event that we do not qualify to extend the notes, we expect to repay them with proceeds from new borrowings or available proceeds from our revolving credit facility.

For additional information on our upcoming debt maturities, see Note 5 to our financial statements beginning on page F-1 of this Supplement.

Distributions

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. The payment of distributions is determined by our board of directors and may be adjusted at its discretion at any time. Distribution levels are set by our board of directors at a level it believes to be appropriate and sustainable based upon a review of a variety of factors including the current and anticipated market conditions, current and anticipated future performance and make-up of our investments, our overall financial projections and expected future cash needs.

Certain payments made during the three months ended March 31, 2016 related to expenses that were accrued for in 2015 such as (i) annual property tax payments, particularly related to properties located in the state of Texas, (ii) the performance based fee paid to our Advisor for our 2015 total shareholder return and (iii) annual bonus compensation payments. As a result, our total distributions exceeded our cash flows from operations for the three months ended March 31, 2016 by approximately $755,000. However, for the twelve month period ending March 31, 2016, we generated approximately $95.2 million of cash flows from operations which fully funded our total distributions of approximately $66.8 million by more than $28.4 million.

The following table sets forth the amounts and sources of distributions declared for the three months ended March 31, 2016 and 2015 (dollar amounts in thousands):   

	For the Three Months Ended
Distributions:	March 31, 2016		% of Total Distributions			March 31, 2015		% of Total Distributions
Common stock distributions paid in cash	$	9,556		59.8	%	$	10,753		62.3	%
Other cash distributions (1)		1,314		8.2	%		1,184		6.9	%
Total cash distributions	$	10,870		68.1	%	$	11,937		69.2	%
Common stock distributions reinvested in common shares		5,099		31.9	%		5,325		30.8	%
Total distributions	$	15,969		100.0	%	$	17,262		100.0	%
Sources of distributions:
Cash flow from operations (2)	$	15,214		95.3	%	$	17,262		100.0	%
Cash on hand (3)		755		4.7	%		—		0.0	%
Financial performance metric:
NAREIT-defined FFO (4)	$	26,058		163.2	%	$	25,603		148.3	%

(1) Other cash distributions include (i) distributions declared for OP Units for the respective period, (ii) regular distributions made during the period to our joint venture partners that are noncontrolling interest holders, which exclude distributions of disposition proceeds related to properties sold by the joint ventures, (iii) dealer manager and distribution fees we pay to our dealer manager with respect to the Class A, Class W and Class I shares, and (iv) dividend equivalents declared during the period to the unvested restricted stock units granted by the Company to our Advisor.

(2) Expenses associated with the acquisition of real property are recorded to earnings and as a deduction to our cash from operations. We incurred acquisition-related expenses of approximately $51,000 and $425,000 during the three months ended March 31, 2016 and 2015, respectively.

(3) Our long-term strategy is to fund the payment of quarterly distributions to investors entirely from our operations. There can be no assurance that we will achieve this strategy. In periods where cash flows from operations are not sufficient to fund distributions, we fund any shortfall with cash on hand or proceeds from borrowings.

(4) NAREIT-defined FFO is an operating metric and should not be used as a liquidity measure. However, management believes the relationship between NAREIT-defined FFO and distributions may be meaningful for investors to better understand the sustainability of our operating performance compared to distributions made. The definition of NAREIT-defined FFO, a reconciliation to GAAP net income, and a discussion of NAREIT-defined FFO’s inherent limitations are provided above in “Selected Information Regarding Our Operations – How We Measure Our Operating Performance.”

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Redemptions

Below is a summary of Class E common stock repurchases pursuant to our self-tender offers and repurchases pursuant to our Class E Share Redemption Program (the “Class E SRP”) for each of the last four quarterly periods (number of shares in thousands). 

For the Quarter Ended:	Number of Class E Shares Requested for Redemption or Purchase		Number of Class E Shares Redeemed or Purchased		Percentage of Class E Shares Requested for Redemption Redeemed or for Purchase Purchased			Price Paid per Share
June 30, 2015
Class E SRP – Ordinary Redemptions		20,031		4,379		21.9	%	$	7.38
Class E SRP – Death or Disability Redemptions		626		626		100.0	%		7.38
Total / Average		20,657		5,005		24.2	%		7.38
September 30, 2015
Class E SRP – Ordinary Redemptions		12,456		1,393		11.2	%		7.42
Class E SRP – Death or Disability Redemptions		452		452		100.0	%		7.42
Self-Tender Offer Purchases (1)		17,153		17,153		100.0	%		7.25
Total / Average		30,061		18,998		63.2	%		7.27
December 31, 2015
Self-Tender Offer Purchases (2)		20,758		2,707		13.0	%		7.39
Total / Average		20,758		2,707		13.0	%		7.39
March 31, 2016
Class E SRP – Death or Disability Redemptions		460		460		100.0	%		7.43
Self-Tender Offer Purchases (2)		13,660		4,058		29.7	%		7.39
Total / Average		14,120		4,518		32.0	%		7.39
Average		21,399		7,807		36.5	%	$	7.31

(1) Amounts represent Class E shares properly tendered and not properly withdrawn at or below the final purchase price of $7.25 per share of a modified “Dutch auction” tender offer, which we completed on August 12, 2015. An additional 6,863 Class E shares were submitted for redemption at prices higher than the final purchase price, and were therefore not properly tendered.

(2) Amounts represent Class E shares purchased pursuant to self-tender offers, which we completed on December 23, 2015 and March 14, 2016.

Additionally, during the first quarter of 2016, we satisfied 100% of redemption requests received pursuant to our Class AWI SRP; we redeemed approximately 175,000 Class I shares for a weighted average price of approximately $7.42 per share, approximately 5,000 Class W shares for a weighted average price of approximately $7.42 per share, and approximately 1,000 Class A shares for a weighted average price of approximately $7.43 per share.

Subsequent Events

The following dispositions and financing transactions occurred subsequent to March 31, 2016.

Self-Tender

On May 6, 2016, we commenced a self-tender offer to purchase for cash up to $30 million of our Class E shares, subject to our ability to increase the number of shares accepted for payment in the offer by up to but not more than 2% of our outstanding Class E shares (resulting in a commensurate increase in the dollar volume by up to approximately $19.5 million, without amending or extending the offer in accordance with rules promulgated by the Commission, at a purchase price of $7.31 per share, net to the seller in cash, less any applicable withholding taxes and without interest. The offer was made upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 6, 2016, and in the related Letter of Transmittal, filed with the Commission on Schedule TO on May 6, 2016. The offer will expire at 5:00 p.m. Central Time, on Monday, June 14, 2016.

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Repayments of Mortgage Notes

Subsequent to March 31, 2016, we repaid two mortgage note borrowings in full prior to their scheduled maturities within the open prepayment period using proceeds from our revolving credit facility. The following table describes our repayment of mortgage note borrowings subsequent to March 31, 2016 (dollar amounts in thousands): 

Debt Obligation	Repayment Date	Balance as of March 31, 2016		Stated  Interest Rate			Contractual Maturity Date	Collateral Type	Collateral Market
655 Montgomery	4/11/2016	$	55,905		6.01	%	06/11/16	Office Property	San Francisco, CA
Jay Street	4/11/2016		23,500		6.05	%	07/11/16	Office Property	Silicon Valley, CA
Total/weighted average		$	79,405		6.02	%

Borrowing Under Mortgage Note

On April 13, 2016, we received proceeds from a new mortgage note borrowing of approximately $33.0 million subject to an interest rate spread of 1.60% over one-month LIBOR, which matures in March 2023. We have effectively fixed the interest rate of the borrowing using interest rate swaps at 3.051% for the term of the borrowing. The mortgage note will be non-amortizing for the first two years and will be amortizing on a 30-year amortization schedule thereafter. The mortgage note is secured by an office property in the Dallas, TX market.

Managed Offering

On May 11, 2016, we notified the Dealer Manager that we would pay a primary dealer fee in the amount of up to 5.0% of the gross proceeds raised from the sale of Class I shares in the primary portion of our ongoing offering of Class A, Class W and Class I shares from May 11, 2016 through June 30, 2016 (the “Managed Offering Term”), but only with respect to sales made by participating broker-dealers that we specifically approved as being eligible (“Primary Dealers”). We have approved three participating broker-dealers as being eligible to participate, generally through selected dealer agreements entered into between the Primary Dealers and the Dealer Manager. In addition, we, the Dealer Manager and our Advisor entered into a new selected dealer agreement (the “Managed Offering Selected Dealer Agreement”) with one of the three approved Primary Dealers, Raymond James & Associates, Inc. (“Raymond James”), pursuant to which Raymond James will use its best efforts to sell Class I shares in transactions entitling it to primary dealer fees during the Managed Offering Term. Pursuant to this agreement, Raymond James may sell Class I shares in the primary portion of the offering up to $50 million in total gross proceeds, provided that we may unilaterally elect to increase the limit up to $100 million. During the Managed Offering Term, we may allow other participating broker-dealers to join as Primary Dealers eligible to receive primary dealer fees. We conducted three distinct similar “managed offerings” in 2013, 2014, and 2015 in which we raised approximately $27.1 million, $44.0 million and $50.8 million, respectively.

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CERTAIN HISTORICAL NAV INFORMATION

Certain Historical NAV Information

The following table shows our NAV per share at the end of each quarter since we commenced calculating our daily NAV on July 12, 2012.  

Date	Class E		Class A		Class W		Class I
September 30, 2012	$	6.64	$	6.64	$	6.64	$	6.64
December 31, 2012	$	6.70	$	6.70	$	6.70	$	6.70
March 31, 2013	$	6.79	$	6.79	$	6.79	$	6.79
June 30, 2013	$	6.83	$	6.83	$	6.83	$	6.83
September 30, 2013	$	6.87	$	6.87	$	6.87	$	6.87
December 31, 2013	$	6.93	$	6.93	$	6.93	$	6.93
March 31, 2014	$	6.96	$	6.96	$	6.96	$	6.96
June 30, 2014	$	7.00	$	7.00	$	7.00	$	7.00
September 30, 2014	$	7.09	$	7.09	$	7.09	$	7.09
December 31, 2014	$	7.16	$	7.16	$	7.16	$	7.16
March 31, 2015	$	7.31	$	7.31	$	7.31	$	7.31
June 30, 2015	$	7.38	$	7.38	$	7.38	$	7.38
September 30, 2015	$	7.42	$	7.42	$	7.42	$	7.42
December 31, 2015	$	7.47	$	7.47	$	7.47	$	7.47
March 31, 2016	$	7.36	$	7.36	$	7.36	$	7.36

Below is the NAV per share, as determined in accordance with our valuation procedures, for each business day from April 1 through April 30, 2016:

Date	Class E		Class A		Class W		Class I
April 1, 2016	$	7.36	$	7.36	$	7.36	$	7.36
April 4, 2016	$	7.36	$	7.36	$	7.36	$	7.36
April 5, 2016	$	7.36	$	7.36	$	7.36	$	7.36
April 6, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 7, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 8, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 11, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 12, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 13, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 14, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 15, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 18, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 19, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 20, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 21, 2016	$	7.36	$	7.36	$	7.36	$	7.36
April 22, 2016	$	7.36	$	7.36	$	7.36	$	7.36
April 25, 2016	$	7.36	$	7.36	$	7.36	$	7.36
April 26, 2016	$	7.35	$	7.35	$	7.35	$	7.35
April 27, 2016	$	7.37	$	7.37	$	7.37	$	7.37
April 28, 2016	$	7.37	$	7.37	$	7.37	$	7.37
April 29, 2016	$	7.37	$	7.37	$	7.37	$	7.37

On any day, our share sales and redemptions are made based on the day’s applicable per share NAV carried out to four decimal places. On each business day, our NAV per share for each class is (1) posted on our website, www.dividendcapitaldiversified.com, and (2) made available on our toll-free, automated telephone line, (888) 310-9352.

 - 31 -

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the adverse effect on the value of assets and liabilities that results from a change in the applicable market resulting from a variety of factors such as perceived risk, interest rate changes, inflation and overall general economic changes. Accordingly, we manage our market risk by matching projected cash inflows from operating, investing and financing activities with projected cash outflows for debt service, acquisitions, capital expenditures, distributions to stockholders and unit holders, and other cash requirements. Our outstanding borrowings are directly impacted by changes in market conditions. This impact is largely mitigated by the fact that the majority of our outstanding borrowings have fixed interest rates, which minimize our exposure to the risk that fluctuating interest rates may pose to our operating results and liquidity.

As of March 31, 2016, the fair value of our fixed-rate borrowings was $520.5 million and the carrying value of our fixed-rate borrowings was $512.8 million. The fair value estimate of our fixed-rate borrowings was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of March 31, 2016. As we expect to hold our fixed-rate borrowings to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed-rate borrowings, would have a significant impact on our operations.

As of March 31, 2016, we had approximately $32.0 million of unhedged floating-rate borrowings outstanding indexed to the interest rate publicly announced by Bank of America as its “prime rate”. If the prime rate relevant to our floating-rate borrowings were to increase 10%, we estimate that our quarterly interest expense would increase by approximately $28,000 based on our outstanding floating-rate debt as of March 31, 2016.

As of March 31, 2016, we had interest rate swap agreements with approximately $7.1 million in excess of our outstanding borrowings under our line of credit and term loans. We are obligated to pay our counterparties under these swap agreements regardless of the level of our unsecured borrowings. If the LIBOR rates relevant to these unused swap agreements were to decrease 10%, we estimate that our quarterly payments under these swap agreements would increase by a negligible amount based on our outstanding borrowings under our line of credit and term loans as of March 31, 2016.

We may seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on loans secured by our assets. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy is designed to minimize the impact on our net income (loss) and funds from operations from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative instruments for hedging or other purposes.

EXPERTS

The statements included in this Supplement under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Net Asset Value Calculation,” relating to the role of Altus Group U.S., Inc. as the Independent Valuation Firm, and the valuation of the real properties and related assumptions, have been reviewed by Altus Group U.S., Inc., an independent valuation firm, and are included in this Supplement given the authority of such firm as experts in property valuations.

 - 32 -

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets	F-2
Condensed Consolidated Statements of Income	F-3
Condensed Consolidated Statements of Comprehensive Income	F-4
Condensed Consolidated Statement of Equity	F-5
Condensed Consolidated Statements of Cash Flows	F-6
Notes to Condensed Consolidated Financial Statements	F-7

 F-1

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and footnoted information)

	As of
	March 31, 2016			December 31, 2015
	(Unaudited)
ASSETS
Investments in real property	$	2,164,290		$	2,380,174
Accumulated depreciation and amortization		(448,994	)		(505,957	)
Total net investments in real property		1,715,296			1,874,217
Debt related investments, net		15,596			15,722
Total net investments		1,730,892			1,889,939
Cash and cash equivalents		11,675			15,769
Restricted cash		16,281			18,394
Other assets, net		35,625			36,789
Total Assets	$	1,794,473		$	1,960,891
LIABILITIES AND EQUITY
Liabilities:
Accounts payable and accrued expenses (1)	$	30,591		$	39,645
Mortgage notes		512,753			585,864
Unsecured borrowings		427,261			511,905
Intangible lease liabilities, net		62,339			63,874
Other liabilities		36,656			33,652
Total Liabilities		1,069,600			1,234,940
Equity:
Stockholders’ equity:
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 161,309,781 and 164,124,057 shares issued and outstanding, as of March 31, 2016 and December 31, 2015, respectively (2)		1,613			1,641
Additional paid-in capital		1,449,364			1,470,859
Distributions in excess of earnings		(803,594	)		(832,681	)
Accumulated other comprehensive loss		(19,429	)		(11,014	)
Total stockholders’ equity		627,954			628,805
Noncontrolling interests		96,919			97,146
Total Equity		724,873			725,951
Total Liabilities and Equity	$	1,794,473		$	1,960,891

(1) Includes approximately $2.0 million and $5.1 million that we owed to our Advisor and affiliates of our Advisor for services and reimbursement of certain expenses as of March 31, 2016 and December 31, 2015, respectively.

(2) See Note 8 for the number of shares outstanding of each class of common stock as of March 31, 2016 and December 31, 2015.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 F-2

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share and footnoted information)

	For the Three Months Ended March 31,
	2016			2015
REVENUE:
Rental revenue	$	55,544		$	59,379
Debt related income		238			3,203
Total Revenue		55,782			62,582
EXPENSES:
Rental expense		16,318			15,129
Real estate depreciation and amortization expense		19,835			20,815
General and administrative expenses (1)		2,621			2,735
Advisory fees, related party		3,765			4,299
Acquisition-related expenses		51			425
Impairment of real estate property		587			1,400
Total Operating Expenses		43,177			44,803
Other Income (Expenses):
Interest and other income		58			632
Interest expense		(10,961	)		(13,981	)
Gain (loss) on extinguishment of debt and financing commitments		5,136			(896	)
Gain on sale of real property (2)		41,400			128,667
Net Income		48,238			132,201
Net income attributable to noncontrolling interests		(4,456	)		(8,618	)
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	43,782		$	123,583
NET INCOME PER BASIC AND DILUTED COMMON SHARE	$	0.27		$	0.69
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		163,954			179,317
Diluted		176,690			191,766
Distributions declared per common share	$	0.0894		$	0.0897

(1) Includes approximately $1.9 million and $1.7 million of reimbursable expenses incurred by our Advisor and its affiliates during the three months ended March 31, 2016 and 2015, respectively.

(2) Includes approximately $1.8 million and $4.5 million paid to our Advisor for advisory fees associated with the disposition of real properties during the three months ended March 31, 2016 and 2015, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 F-3

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	For the Three Months Ended March 31,
	2016			2015
Net Income	$	48,238		$	132,201
Other Comprehensive Loss:
Change from cash flow hedging derivatives		(9,078	)		(1,807	)
Comprehensive income		39,160			130,394
Comprehensive income attributable to noncontrolling interests		(3,793	)		(8,499	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	35,367		$	121,895

The accompanying notes are an integral part of these condensed consolidated financial statements.

 F-4

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(In thousands)

	Stockholders’ Equity
													Accumulated
							Additional			Distributions			Other
	Common Stock						Paid-in			in Excess of			Comprehensive			Noncontrolling			Total
	Shares			Amount			Capital			Earnings			(Loss) Income			Interests			Equity
Balances, December 31, 2015		164,124		$	1,641		$	1,470,859		$	(832,681	)	$	(11,014	)	$	97,146		$	725,951
Comprehensive income (loss):
Net income		—			—			—			43,782			—			4,456			48,238
Unrealized change from cash flow hedging derivatives		—			—			—			—			(8,424	)		(654	)		(9,078	)
Common stock:
Issuance of common stock, net of offering costs		1,864			19			13,228			—			—			—			13,247
Issuance of common stock, stock-based compensation plans		22			—			159			—			—			—			159
Redemptions of common stock		(4,700	)		(47	)		(34,783	)		—			—			—			(34,830	)
Amortization of stock-based compensation		—			—			251			—			—			—			251
Distributions declared on common stock		—			—			—			(14,655	)		—			—			(14,655	)
Distributions on unvested Advisor RSUs		—			—			—			(40	)		—			—			(40	)
Noncontrolling interests:
Contributions of noncontrolling interests		—			—			—			—			—			2,426			2,426
Distributions declared to noncontrolling interests		—			—			—			—			—			(5,090	)		(5,090	)
Redemptions of noncontrolling interests		—			—			(350	)		—			9			(1,365	)		(1,706	)
Balances, March 31, 2016		161,310		$	1,613		$	1,449,364		$	(803,594	)	$	(19,429	)	$	96,919		$	724,873

The accompanying notes are an integral part of these condensed consolidated financial statements.

 F-5

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	For the Three Months Ended  March 31,
	2016			2015
OPERATING ACTIVITIES:
Net income	$	48,238		$	132,201
Adjustments to reconcile net income to net cash provided by operating activities:
Real estate depreciation and amortization expense		19,835			20,815
Gain on disposition of real property		(41,400	)		(128,667	)
Impairment of real estate property		587			1,400
(Gain) loss on extinguishment of debt and financing commitments		(5,136	)		896
Other adjustments to reconcile net income to net cash provided by operating activities		1,468			1,334
Changes in operating assets and liabilities		(8,378	)		(2,428	)
Net cash provided by operating activities		15,214			25,551
INVESTING ACTIVITIES:
Acquisition of real property		—			(69,031	)
Capital expenditures in real property		(7,258	)		(2,867	)
Proceeds from disposition of real property		175,965			311,333
Principal collections on debt related investments		114			4,635
Other investing activities		(351	)		(4,685	)
Net cash provided by investing activities		168,470			239,385
FINANCING ACTIVITIES:
Mortgage note principal repayments		(59,733	)		(24,475	)
Defeasance of mortgage note borrowings		—			(53,267	)
Net (repayments of) proceeds from revolving line of credit borrowings		(85,000	)		6,000
Net repayments of term loan borrowings		—			(170,000	)
Redemption of common shares		(37,144	)		(14,891	)
Distributions on common stock		(9,786	)		(10,425	)
Proceeds from sale of common stock		8,687			5,998
Offering costs for issuance of common stock		(970	)		(1,026	)
Distributions to noncontrolling interest holders		(2,684	)		(1,074	)
Redemption of OP Unit holder interests		(1,124	)		(644	)
Other financing activities		(24	)		(5,367	)
Net cash used in financing activities		(187,778	)		(269,171	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(4,094	)		(4,235	)
CASH AND CASH EQUIVALENTS, beginning of period		15,769			14,461
CASH AND CASH EQUIVALENTS, end of period	$	11,675		$	10,226
Supplemental Disclosure of Cash Flow Information:
Cash (proceeds from) paid for interest	$	10,851		$	13,208
Supplemental Disclosure of Noncash Investing and Financing Activities:
Common stock issued pursuant to the distribution reinvestment plan	$	5,094		$	5,262
Issuances of OP Units for beneficial interests	$	—		$	7,324
Non-cash principal collection on debt related investments *	$	—		$	3,358
Non-cash disposition of real property *	$	7,830		$	128,008
Non-cash repayment of mortgage note and other secured borrowings *	$	—		$	131,366

* Represents the amount of sales proceeds and debt repayments from the disposition of real property or the repayment of borrowings that we did not receive or pay in cash, primarily due to the repayment or assumption of related borrowings by the purchaser or borrower at closing.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 F-6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

Three Months Ended March 31, 2016

(Unaudited)

	Page
Note 1 - Organization	F-8
Note 2 - Summary of Significant Accounting Policies	F-9
Note 3 – Investments in Real Property	F-9
Note 4 – Debt Related Investments	F-11
Note 5 – Debt Obligations	F-12
Note 6 – Derivatives and Hedging Activities	F-14
Note 7 – Fair Value of Financial Instruments	F-16
Note 8 – Stockholders’ Equity	F-17
Note 9 – Related Party Transactions	F-17
Note 10 – Net Income per Common Share	F-21
Note 11 – Segment Information	F-21
Note 12 – Subsequent Events	F-22

 F-7

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2016

(Unaudited)

1. ORGANIZATION

Dividend Capital Diversified Property Fund Inc. is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real property and real estate related investments. As used herein, “the Company,” “we,” “our” and “us” refer to Dividend Capital Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.

We operate in such a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes, and we utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through our operating partnership, Dividend Capital Total Realty Operating Partnership, L.P. (our “Operating Partnership”).

We are the sole general partner of our Operating Partnership. In addition, we have contributed 100% of the proceeds received from our offerings of common stock to our Operating Partnership in exchange for partnership units (“OP Units”) representing our interest as a limited partner of the Operating Partnership. The Operating Partnership qualifies as a variable interest entity for accounting purposes and substantially all of the assets of the Company are held by the Operating Partnership, which, subject to certain Operating Partnership and subsidiary level financing restrictions, can be used to settle its obligations. Creditors of certain liabilities of the Operating Partnership have recourse to the Company. Under the Operating Partnership, we have variable interest entities that are joint ventures in which we have real estate investments in. The accompanying condensed consolidated balance sheets included approximately $50.1 million and $76.9 million, after accumulated depreciation and amortization, in the net investments in real property in these consolidated variable interest entities as of March 31, 2016 and December 31, 2015, respectively. The accompanying condensed consolidated balance sheets included approximately $24.0 million and $50.1 million in mortgage notes in these consolidated variable interest entities as of March 31, 2016 and December 31, 2015, respectively.

As of both March 31, 2016 and December 31, 2015, we owned approximately 92.8% of the limited partnership interests in our Operating Partnership, and the remaining limited partnership interests in our Operating Partnership were owned by third-party investors. Our Operating Partnership has classes of OP Units that correspond to our four classes of common stock: Class E OP Units, Class A OP Units, Class W OP Units, and Class I OP Units. As of March 31, 2016 and December 31, 2015, our Operating Partnership had issued and outstanding approximately 12.6 million and 12.8 million Class E OP Units held by third party investors, respectively, which represent limited partnership interests issued in connection with its private placement offerings. As of March 31, 2016 and December 31, 2015, such Class E OP Units had a maximum approximate redemption value of $92.5 million and $95.6 million, respectively, based on the most recent selling price of our common stock pursuant to our primary offering.

Dividend Capital Total Advisors LLC (our “Advisor”), a related party, manages our day-to-day activities under the terms and conditions of an advisory agreement (as amended from time to time, the “Advisory Agreement”). Our Advisor and its affiliates receive various forms of compensation, reimbursements and fees for services relating to the investment and management of our real estate assets.

On July 12, 2012, the Securities and Exchange Commission (the “Commission”) declared effective our Registration Statement on Form S-11 (Registration Number 333-175989) (as amended, the “Prior Registration Statement”). The Prior Registration Statement applied to the offer and sale (the “Prior Offering”) of up to $3,000,000,000 of our shares of common stock, of which $2,250,000,000 of shares were expected to be offered to the public in a primary offering and $750,000,000 of shares were expected to be offered to our stockholders pursuant to an amended and restated distribution reinvestment plan (subject to our right to reallocate such amounts). In the Prior Offering, we offered to the public three classes of shares: Class A shares, Class W shares and Class I shares with net asset value (“NAV”) based pricing. On September 15, 2015, we terminated the Prior Offering. Through September 15, 2015, the date our Prior Offering terminated, we had raised gross proceeds of approximately $183.0 million from the sale of approximately 25.8 million shares in the Prior Offering, including approximately $3.4 million through our distribution reinvestment plan.

On September 16, 2015, the Commission declared effective our Registration Statement on Form S-11 (Registration Number 333-197767) (the “Follow-On Registration Statement”). The Follow-On Registration Statement applies to the Company’s follow-on “best efforts” offering of up to $1,000,000,000 of the Company’s Class A, Class I and Class W shares of common stock, of which $750,000,000 of shares are expected to be offered to the public in a primary offering and $250,000,000 of shares are expected to be offered to stockholders of the Company pursuant to its distribution reinvestment plan (subject to the Company’s right to reallocate such amounts) (the “Follow-On Offering”). As of March 31, 2016, we had raised gross proceeds of approximately $23.7 million from the sale of approximately 3.2 million shares in the Follow-On Offering.

We are offering to sell any combination of Class A shares, Class W shares and Class I shares with a dollar value up to the maximum offering amount pursuant to the Follow-On Offering. We also sell shares of our unclassified common stock, which we refer to as “Class E” shares, pursuant to our distribution reinvestment plan offering registered on our Registration Statement on Form S-3 (Registration Number 333-162636). In the event of a liquidation event, such assets, or the proceeds therefrom, will be distributed ratably in proportion to the respective NAV for each class until the NAV for each class has been paid. Other than differing allocable fees and liquidation rights, Class E shares, Class A shares, Class W shares, and Class I shares have identical rights and privileges.

 F-8

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying interim condensed consolidated financial statements (herein referred to as “financial statements,” “balance sheets,” “statements of income,” “statements of comprehensive income,” “statement of equity,” or “statements of cash flows”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the Commission instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, these financial statements do not include all the information and disclosure required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments and eliminations, consisting only of normal recurring items necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of operating results for a full year. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited financial statements and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Commission on March 3, 2016. There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2016 other than the updates described below.

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current period financial statement presentation. In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2015-03 (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective for all reporting periods beginning after December 15, 2015 and requires retrospective application. As a result of adopting this guidance, we reclassified approximately $5.1 million and $1.2 million of net debt issuance costs to “unsecured borrowings” and “mortgage notes”, respectively, in the accompanying condensed consolidated balance sheet as of December 31, 2015. We recorded approximately $4.7 million and $1.0 million of net debt issuance costs into “unsecured borrowings” and “mortgage notes”, respectively, in the accompanying condensed consolidated balance sheet as of March 31, 2016.

New Accounting Pronouncements

In March 2016, the FASB issued Accounting Standards Update 2016-05, which clarifies the effect of derivative contract novations on existing hedge accounting relationships. The guidance states that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”) does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The guidance will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. The guidance can be adopted on either a prospective basis or a modified retrospective basis. Earlier application is permitted. We do not anticipate the adoption will have a significant impact on our financial statements.

In February 2016, the FASB issued Accounting Standards Update 2016-02 (“ASU 2016-02”), which amends the accounting guidance regarding lessees accounting, leveraged leases, and sale and leaseback transactions. The accounting applied by a lessor is largely unchanged under ASU 2016-02. The guidance will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018. The guidance should be adopted using a modified retrospective transition, which will require application of ASU 2016-02 at the beginning of the earliest comparative period presented. Earlier application is permitted. We do not anticipate the adoption will have a significant impact on our consolidated financial statements.

Newly Adopted Accounting Pronouncements

In February 2015, the FASB issued Accounting Standards Update 2015-02 (“ASU 2015-02”), which amends certain guidance applicable to the consolidation of various legal entities, including variable interest entities. The amendments in ASU 2015-02 are effective for annual and interim periods in fiscal years beginning after December 15, 2015, with early adoption permitted. As a result of adopting this guidance as of January 1, 2016, our Operating Partnership qualifies as a variable interest entity.

 F-9

3. INVESTMENTS IN REAL PROPERTY

Currently, our consolidated investments in real property consist of investments in office, industrial and retail properties. The following tables summarize our consolidated investments in real property as of March 31, 2016 and December 31, 2015 (amounts in thousands): 

Real Property	Land		Building and Improvements			Intangible Lease Assets			Total Investment Amount			Intangible Lease Liabilities			Net Investment Amount
As of March 31, 2016:
Office	$	173,876	$	705,603		$	249,218		$	1,128,697		$	(18,577	)	$	1,110,120
Industrial		9,572		68,051			16,436			94,059			(344	)		93,715
Retail		260,761		571,638			109,135			941,534			(74,282	)		867,252
Total gross book value		444,209		1,345,292			374,789			2,164,290			(93,203	)		2,071,087
Accumulated depreciation/amortization		—		(187,132	)		(261,862	)		(448,994	)		30,864			(418,130	)
Total net book value	$	444,209	$	1,158,160		$	112,927		$	1,715,296		$	(62,339	)	$	1,652,957
As of December 31, 2015:
Office	$	203,889	$	833,655		$	310,629		$	1,348,173		$	(18,923	)	$	1,329,250
Industrial		9,572		65,307			16,436			91,315			(344	)		90,971
Retail		260,761		570,700			109,225			940,686			(74,282	)		866,404
Total gross book value		474,222		1,469,662			436,290			2,380,174			(93,549	)		2,286,625
Accumulated depreciation/amortization		—		(208,281	)		(297,676	)		(505,957	)		29,675			(476,282	)
Total net book value	$	474,222	$	1,261,381		$	138,614		$	1,874,217		$	(63,874	)	$	1,810,343

Dispositions

During the three months ended March 31, 2016 and March 31, 2015, we disposed of the following properties (dollar amounts and square footage in thousands):

Property Type	Market	Ownership		Net Rentable Square Feet		Percentage Leased		Disposition Date	Contract Sales Price		Gain on Sale
During the three months ended March 31, 2016:
Office	Washington, DC		100%		574		100%	2/18/16	$	158,400	$	41,241
Office	Chicago, IL		80%		107		66%	3/1/16		9,850		—
Office	Chicago, IL		80%		199		81%	3/1/16		18,000		159
Total/ Weighted Average					880		92%		$	186,250	$	41,400
During the three months ended March 31, 2015:
Office and Industrial Portfolio (1)	Various (1)		100%		2,669		100%	3/11/15	$	398,635	$	105,542
Office	Dallas, TX		100%		177		88%	1/16/15		46,600		23,125
Total/ Weighted Average					2,846		99%		$	445,235	$	128,667

(1) The office and industrial portfolio includes (i) six office properties comprising 1.1 million net rentable square feet located in the following markets: Los Angeles, CA (three properties, of which one disposed property was a single building from a two-building office property), Northern New Jersey, Miami, FL, and Dallas, TX, and (ii) six industrial properties comprising 1.6 million net rentable square feet located in the following markets: Los Angeles, CA, Dallas, TX, Cleveland, OH, Chicago, IL, Houston, TX, and Denver, CO.

Real Property Impairment

During three months ended March 31, 2016, we recorded a $587,000 impairment charge related to a consolidated office property located in the Chicago, IL market, which we acquired in January 2007 and we held through a joint venture in which we were not the managing partner. We held an 80% ownership interest in the office property. We sold this property in March 2016. Prior to the disposition, the net book value of the property exceeded the contract sales price less the cost to sell by approximately $587,000. Accordingly, we recorded an impairment charge to reduce the net book value of the property to our estimate of its fair value less the cost to sell.

During the three months ended March 31, 2015, we recorded approximately $1.4 million of impairment charges related to a wholly owned retail property that we acquired in May 2007 in the Pittsburgh, PA market, which was classified as held for sale as of March 31, 2015 and disposed of in May 2015. As of March 31, 2015, the net book value of this retail property exceeded our estimate of the fair value of the property less the cost to sell by $1.4 million. Accordingly, we recorded an impairment to reduce the net book value of the property to our estimate of its fair value less the cost to sell.

In the calculation of our daily NAV, our real estate assets are carried at fair value using valuation methodologies consistent with ASC Topic 820, Fair Value Measurement and Disclosures (“ASC Topic 820”). As a result, the timing of valuation changes recorded in our NAV will not necessarily be the same as for impairment charges recorded to our consolidated financial statements prepared pursuant to GAAP. Since we determine our NAV daily, impairment charges pursuant to GAAP will likely always be delayed and potentially significantly delayed compared to the change in fair value of our properties included in the calculation of our daily NAV.

 F-10

Discontinued Operations

We present the results of operations and the respective aggregate net gains (losses) of any property or group of properties, the disposal of which would represent a strategic shift that has (or will have) a major effect on our operations and financial results, when such property (or group of properties) have been disposed of or classified as held for sale, as discontinued operations in our accompanying statements of income. We did not have any discontinued operations for the three months ended March 31, 2016 and 2015.

Rental Revenue

The following table summarizes the adjustments to rental revenue related to the amortization of above-market lease assets, below-market lease liabilities, and straight-line rental adjustments for the three months ended March 31, 2016 and 2015. In addition, the following table summarizes tenant recovery income received from tenants for real estate taxes, insurance and other property operating expenses and recognized as rental revenue (amounts in thousands):

	For the Three Months Ended March 31,
	2016			2015
Straight-line rent adjustments	$	(240	)	$	(356	)
Above-market lease assets		(1,267	)		(1,360	)
Below-market lease liabilities		1,535			1,713
Total increase (decrease) to rental revenue	$	28		$	(3	)
Tenant recovery income (1)	$	10,564		$	10,165

(1) Tenant recovery income presented in this table excludes real estate taxes that were paid directly by our tenants that are subject to triple net lease contracts. Such payments totaled approximately $1.4 million and $2.6 million during the three months ended March 31, 2016 and 2015, respectively.

Concentration of Credit Risk

Concentration of credit risk with respect to our sources of revenue currently exists due to a small number of tenants whose rental payments to us make up a relatively high percentage of our rental revenue. Rental revenue from our lease with Charles Schwab & Co., Inc., as master tenant of one of our office properties, represented approximately $6.1 million, or 11.0%, of our total revenue for the three months ended March 31, 2016. The following is a summary of amounts related to the top five tenants based on annualized base rent, as of March 31, 2016 (dollar amounts and square feet in thousands):

Tenant	Locations		Industry	Annualized Base Rent (1)		% of Total  Annualized Base Rent			Square Feet		% of Total Portfolio Square Feet
Charles Schwab & Co., Inc.		2	Securities, Commodities, Fin. Inv./Rel. Activities	$	23,408		14.2	%		602		7.3	%
Sybase		1	Publishing Information (except Internet)		18,692		11.4	%		405		4.9	%
Stop & Shop		15	Food and Beverage Stores		14,168		8.6	%		882		10.6	%
Novo Nordisk		1	Chemical Manufacturing		4,535		2.8	%		167		2.0	%
Seton Health Care		1	Hospitals		4,339		2.6	%		156		1.9	%
		20		$	65,142		39.6	%		2,212		26.7	%

(1) Annualized base rent represents the annualized monthly base rent of executed leases as of March 31, 2016.

Our properties in Massachusetts, New Jersey, California, and Texas accounted for approximately 20%, 20%, 14%, and 12% respectively, of our total gross investment in real property portfolio as of March 31, 2016. A deterioration of general economic or other relevant conditions, changes in governmental laws and regulations, acts of nature, demographics or other factors in any of those states or the geographical region in which they are located could result in the loss of tenants, a decrease in the demand for our properties and a decrease in our revenues from those markets, which in turn may have a disproportionate and material adverse effect on our results of operations and financial condition.

 F-11

4. DEBT RELATED INVESTMENTS

As of both March 31, 2016 and December 31, 2015, we had invested in three debt related investments. The weighted average maturity of our debt related investments structured as mortgage notes as of March 31, 2016 was 3.0 years, based on our recorded net investments. The following table describes our debt related income for the three months ended March 31, 2016 and 2015 (dollar amounts in thousands):

	For the Three Months Ended  March 31,				Weighted Average Yield as of
Investment Type	2016		2015		March 31, 2016 (1)
Mortgage notes (2)	$	238	$	2,413		6.1%
Mezzanine debt		—		790		N/A
Total	$	238	$	3,203		6.1%

(1) Weighted average yield is calculated on an unlevered basis using the amount invested, current interest rates and accretion of premiums or discounts realized upon the initial investment for each investment type as of March 31, 2016. As of March 31, 2016, all of our debt related investments bear interest at fixed rates.

(2) We had a debt related investments structured as a mortgage note repaid in full during the three months ended March 31, 2015. During the three months ended March 31, 2015, amounts recorded include early repayment fees received and accelerated amortization of deferred due diligence costs related to certain of these repayments.

Impairment

As of March 31, 2016 and December 31, 2015, we did not have any allowance for loan loss. During the three months ended March 31, 2016, we did not record any current period provision for loan loss or recoveries of amounts previously charged off. We did not have any debt related investments on non-accrual status as of March 31, 2016 or December 31, 2015. We did not record any interest income related to our impaired debt related investment during the three months ended March 31, 2016 or 2015.

5. DEBT OBLIGATIONS

The following table describes our borrowings as of March 31, 2016 and December 31, 2015 (dollar amounts in thousands):

	Principal Balance as of						Weighted Average Stated Interest Rate as of				Gross Investment Amount Securing Borrowings as of (1)
	March 31, 2016			December 31, 2015			March 31, 2016		December 31, 2015		March 31, 2016		December 31, 2015
Fixed-rate mortgages	$	513,053		$	580,959			5.4%		5.6%	$	921,587	$	1,016,560
Floating-rate mortgages (2)		—			7,890			N/A		3.4%		N/A		16,618
Total secured borrowings		513,053			588,849			5.4%		5.5%		921,587		1,033,178
Line of credit (3)		82,000			167,000			3.4%		1.9%		N/A		N/A
Term loans (4)		350,000			350,000			2.6%		2.6%		N/A		N/A
Total unsecured borrowings		432,000			517,000			2.8%		2.4%		N/A		N/A
Total borrowings	$	945,053		$	1,105,849			4.2%		4.1%		N/A		N/A
Less: net debt issuance costs (5)		(5,762	)		(6,317	)
Add: mark-to-market adjustment on assumed debt		723			1,304
Less: GAAP principal amortization on restructured debt		—			(3,067	)
Total borrowings (GAAP basis)	$	940,014		$	1,097,769

(1) “Gross Investment Amount” as used here and throughout this document represents the allocated gross basis of real property after certain adjustments. Gross Investment Amount for real property (i) includes the effect of intangible lease liabilities, (ii) excludes accumulated depreciation and amortization, and (iii) includes the impact of impairments. 

(2) As of December 31, 2015, our floating rate mortgage note was subject to an interest rate spread of 3.00% over one-month LIBOR.

(3) As of March 31, 2016, approximately $50.0 million borrowings under our line of credit were subject to interest at a floating rate of 1.55% over one-month LIBOR, which we had effectively fixed using interest rate swaps, resulting in a stated interest rate of 2.96%. As of March 31, 2016, approximately $32.0 million borrowings under our line of credit were subject to interest at a floating rate of 0.55% over the interest rate publicly announced by Bank of America as its “prime rate”, resulting in a stated interest rate of 4.05%. As of December 31, 2015, borrowings under our line of credit were subject to interest at a floating rate of 1.40% over one-month LIBOR. However, as of December 31, 2015, we had effectively fixed the interest rate of approximately $25.4 million of the total of $167.0 million in borrowings using interest rate swaps, resulting in a weighted average interest rate on the total line of credit of 1.88%.

(4) As of March 31, 2016 and December 31, 2015, borrowings under our term loans were subject to interest at weighted average floating rates of 1.56 % and 1.52%, respectively, over one-month LIBOR. However, we had effectively fixed the interest rates of the borrowings using interest rate swaps at 2.64% and 2.59% as of March 31, 2016 and December 31, 2015, respectively.

(5) See Note 2 for additional information related to the reclassification of net debt issuance costs in accordance with ASU 2015-03.

Mortgage Notes

As of March 31, 2016, nine mortgage notes were interest-only and six mortgage notes were fully amortizing with outstanding principal balances of approximately $322.5 million and $190.6 million, respectively. None of our mortgage notes are recourse to us.

Credit Facility

On January 13, 2015, we entered into a $550 million senior unsecured term loan and revolving line of credit (the “Facility”) with a syndicate of 14 lenders led by Bank of America, N.A., as Administrative Agent. The Facility provides us with the ability from time to time to increase the size of the Facility up to a total of $900 million less the amount of any prepayments under the term loan component of the Facility, subject to receipt of lender commitments and other conditions.

 F-12

The $550 million Facility consists of a $400 million revolving credit facility (the “Revolving Credit Facility”) and a $150 million term loan (the “$150 Million Term Loan”). The Revolving Credit Facility contains a sublimit of $50 million for letters of credit and a sublimit of $50 million for swing line loans. The primary interest rate for the Revolving Credit Facility is based on LIBOR, plus a margin ranging from 1.40% to 2.30%, depending on our consolidated leverage ratio. The maturity date of the Revolving Credit Facility is January 31, 2019 and contains one 12-month extension option that we may exercise upon (i) payment of an extension fee equal to 0.15% of the sum of the amount outstanding under the Revolving Credit Facility and the unused portion of the Revolving Credit Facility at the time of the extension, and (ii) compliance with the other conditions set forth in the credit agreement. The primary interest rate within the $150 Million Term Loan is based on LIBOR, plus a margin ranging from 1.35% to 2.20%, depending on our consolidated leverage ratio. The maturity date of the $150 Million Term Loan is January 31, 2018 and contains two 12-month extension options that we may exercise upon (i) payment of an extension fee equal to 0.125% of the sum of the amount outstanding under the $150 Million Term Loan at the time of each extension, and (ii) compliance with the other conditions set forth in the credit agreement.

Borrowings under the Facility are available for general business purposes including, but not limited to, refinancing of existing indebtedness and financing the acquisition of permitted investments, including commercial properties. 

Term Loan Credit Agreement

On February 27, 2015, we entered into a $200 million seven-year term loan credit agreement (the “$200 Million Term Loan”) with a syndicate of six lenders led by Wells Fargo Bank, National Association as Administrative Agent and Regions Bank as Syndication Agent. The primary interest rate within the $200 Million Term Loan is based on LIBOR, plus a margin ranging from 1.65% to 2.55%, depending on our consolidated leverage ratio. The maturity date of the $200 Million Term Loan is February 27, 2022 with no extension options.

 Borrowings under the $200 Million Term Loan are available for general business purposes including, but not limited to financing the acquisition of permitted investments, including commercial properties.

As of March 31, 2016 and December 31, 2015, the unused portion of the Revolving Credit Facility was approximately $315.8 million and $230.8 million, respectively. As of both March 31, 2016 and December 31, 2015, we were in compliance with all the debt covenants under our credit facilities and had full access to the unused portion of the Revolving Credit Facility.

Repayment of Mortgage Notes

During the three months ended March 31, 2016, we repaid three mortgage note borrowings in full during the respective free-prepayment periods prior to their scheduled maturities using proceeds from the Facility and the disposition of real properties. The following table describes these repayments in more detail (dollar amounts in thousands):

Debt Obligation	Repayment Date	Balance Repaid/ Extinguished		Interest Rate Fixed or Floating	Stated Interest Rate as of Repayment Date	Contractual Maturity Date	Collateral Type	Collateral Market
40 Boulevard (1)	3/1/16	$	7,830	Floating	3.44%	3/11/16	Office Property	Chicago, IL
Washington Commons (2)	2/1/16		21,300	Fixed	5.94%	2/1/16	Office Property	Chicago, IL
1300 Connecticut	1/12/16		44,979	Fixed	6.81%	4/10/16	Office Property	Washington, DC
Total/weighted average borrowings		$	74,109		6.20%

(1) The mortgage note is subject to an interest rate of 3.0% over one-month LIBOR.

(2) Amount presented includes a $5.1 million contingently payable mortgage note that was not ultimately required to be repaid. As a result of the transaction, we recognized a gain on extinguishment of debt and financing commitments of approximately $5.1 million during the three months ended March 31, 2016.

 F-13

The following table reflects our contractual debt maturities as of March 31, 2016, specifically our obligations under our mortgage notes and unsecured borrowings (dollar amounts in thousands):

	As of March 31, 2016
	Mortgage Notes			Unsecured Borrowings			Total
Year Ending December 31,	Number of Borrowings Maturing	Outstanding Principal Balance		Number of Borrowings Maturing	Outstanding Principal Balance		Outstanding Principal Balance
2016	4	$	210,883	—	$	—	$	210,883
2017	6		206,660	—		—		206,660
2018	—		1,762	1		150,000		151,762
2019	—		1,869	1		82,000		83,869
2020	—		1,982	—		—		1,982
2021	1		10,825	—		—		10,825
2022	1		1,663	1		200,000		201,663
2023	—		978	—		—		978
2024	—		1,034	—		—		1,034
2025	1		71,094	—		—		71,094
Thereafter	2		4,303	—		—		4,303
Total	15	$	513,053	3	$	432,000	$	945,053
Less: net debt issuance costs (1)			(1,023)			(4,739)
Add: mark-to-market adjustment on assumed debt			723			—
Total borrowings (GAAP basis)		$	512,753		$	427,261

(1) See Note 2 for additional information related to the reclassification of net debt issuance costs in accordance with ASU 2015-03.

6. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

We maintain risk management control systems to monitor interest rate risk attributable to both our outstanding and forecasted debt obligations. We generally seek to limit the impact of interest rate changes on earnings and cash flows by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on our unsecured floating rate borrowings. While this hedging strategy is designed to minimize the impact on our net income (loss) and cash provided by operating activities from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative instruments for hedging or other purposes to achieve these risk management objectives.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from counterparties in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amounts. We have entered into and plan to enter into certain interest rate derivatives with the goal of mitigating our exposure to adverse fluctuations in the interest payments on our one-month LIBOR-indexed debt. Certain of our floating rate borrowings are not hedged and therefore, to an extent, we have ongoing exposure to interest rate movements.

 F-14

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges under ASC Topic 815 is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the next 12 months, we estimate that approximately $3.0 million will be reclassified as an increase to interest expense related to active effective hedges of existing floating-rate debt, and we estimate that approximately $1.9 million will be reclassified as an increase to interest expense related to effective forward started interest rate swaps where the hedging instrument has been terminated. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The table below presents a reconciliation of the beginning and ending balances, between December 31, 2015 and March 31, 2016, of our accumulated other comprehensive loss (“OCI”), net of amounts attributable to noncontrolling interests, related to the effective portion of our cash flow hedges as presented on our consolidated financial statements, as well as amounts related to our available-for-sale securities (amounts in thousands):   

	Gains and Losses on Cash Flow Hedges			Unrealized Losses on Available-For- Sale Securities			Accumulated Other Comprehensive Loss
Beginning balance as of December 31, 2015:	$	(9,967	)	$	(1,047	)	$	(11,014	)
Other comprehensive income:
Amount of loss reclassified from OCI into interest expense (effective portion) (net of tax benefit of $0)		1,117			—			1,117
Change in fair value recognized in OCI (effective portion) (net of tax benefit of $0)		(10,195	)		—			(10,195	)
Net current-period other comprehensive income		(9,078	)		—			(9,078	)
Attribution of and other adjustments to OCI attributable to noncontrolling interests		668			(5	)		663
Ending balance as of March 31, 2016:	$	(18,377	)	$	(1,052	)	$	(19,429	)

Fair Values of Derivative Instruments

The fair values of interest rate derivatives are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the derivatives. The variable interest rates used in the calculation of projected receipts on the derivatives are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

The majority of the inputs used to value our derivative instruments fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments associated with our derivative instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of potential default by us and our counterparties. As of March 31, 2016, we had assessed the significance of the impact of the credit valuation adjustments and had determined that it was not significant to the overall valuation of our derivative instruments. As a result, we have determined that our derivative valuations are classified in Level 2 of the fair value hierarchy.

Designated Derivatives

As of March 31, 2016 and December 31, 2015, we had 13 and 12 outstanding interest rate swaps, respectively, that were designated as cash flow hedges of interest rate risk, with a total notional amount of $407.1 million and $375.4 million, respectively. In addition, as of March 31, 2016, we had (i) two interest rate swaps with a total notional amount of $100.0 million that will become effective in December 2016 and mature in January 2020 and (ii) two interest rate swaps with a total notional amount of $100.0 million that will become effective in December 2016 and mature in February 2022, all of which were designated as cash flow hedges of interest rate risk.

The table below presents the gross fair value of our designated derivative financial instruments as well as their classification on our accompanying condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015 (amounts in thousands):

		Fair Value of Asset Derivatives as of					Fair Value of Liability Derivatives as of
	Balance Sheet	March 31,		December 31,		Balance Sheet	March 31,			December 31,
	Location	2016		2015		Location	2016			2015
Interest rate contracts	Other assets, net (1)	$	11	$	197	Other liabilities (1)	$	(12,651	)	$	(3,303	)
Total derivatives		$	11	$	197		$	(12,651	)	$	(3,303	)

(1) Although our derivative contracts are subject to master netting arrangements which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on our accompanying condensed consolidated balance sheets. If we did net our derivative fair values on our accompanying condensed consolidated balance sheets, the derivative fair values would be lowered by approximately $8,000 and $157,000 as of March 31, 2016 and December 31, 2015, respectively, resulting in net fair values of our asset derivatives of approximately $2,000 and $41,000 as of March 31, 2016 and December 31, 2015, respectively, and net fair values of our liability derivatives of approximately $12.6 million and $3.1 million as of March 31, 2016 and December 31, 2015, respectively.

 F-15

Effect of Derivative Instruments on the Statements of Comprehensive Income

The table below presents the effect of our derivative financial instruments on our accompanying financial statements for the three months ended March 31, 2016 and 2015 (amounts in thousands):

	For the Three Months Ended March 31,
	2016			2015
Derivatives Designated as Hedging Instruments
Derivative type		Interest rate contracts			Interest rate contracts
Amount of loss recognized in OCI (effective portion)	$	(10,195	)	$	(2,971	)
Location of loss reclassified from accumulated OCI into income (effective portion)		Interest expense			Interest expense
Amount of loss reclassified from accumulated OCI into income (effective portion)	$	1,117		$	1,164
Location of loss recognized in income (ineffective portion and amount excluded from effectiveness testing)		Interest and other income (expense)			Interest and other income (expense)
Amount of loss recognized in income (ineffective portion and amount excluded from effectiveness testing)	$	—		$	(11	)

Credit-Risk-Related Contingent Features

We have agreements with certain of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. We have agreements with certain other derivative counterparties that contain a provision whereby if we default on any of our indebtedness held by our Operating Partnership, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.

As of March 31, 2016, the fair value of derivatives in a net liability position, which included accrued interest but excluded any credit valuation adjustments related to these agreements, was approximately $13.2 million. As of March 31, 2016, we have not posted any collateral related to these agreements. If we had breached any of these provisions at March 31, 2016, we could have been required to settle our obligations under the agreements at their termination value of $13.2 million.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

We use the framework established in ASC Topic 820, to measure the fair value of our financial instruments as disclosed in the table below. The fair values estimated below are indicative of certain interest rate and other assumptions as of March 31, 2016 and December 31, 2015, and may not take into consideration the effects of subsequent interest rate or other assumption fluctuations, or changes in the values of underlying collateral. The fair values of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses approximate their carrying values because of the short-term nature of these instruments.

The table below presents the carrying amounts and estimated fair values of our other financial instruments, other than derivatives which are disclosed in Note 6, as of March 31, 2016 and December 31, 2015 (amounts in thousands):   

	As of March 31, 2016				As of December 31, 2015
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Fixed-rate debt related investments, net	$	15,596	$	16,558	$	15,722	$	16,526
Liabilities:
Fixed-rate mortgage notes	$	512,753	$	520,521	$	577,978	$	576,432
Floating-rate mortgage notes		—		—		7,887		7,883
Floating-rate unsecured borrowings		427,261		427,261		511,905		511,905

The methodologies used and key assumptions made to estimate fair values of the financial instruments, other than derivatives disclosed in Note 6, described in the above table are as follows:

Debt Related Investments — The fair value of our performing debt related investments are estimated using a discounted cash flow methodology. This method discounts estimated future cash flows using rates management determines best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Credit spreads and market interest rates used to determine the fair value of these instruments are based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values.

 F-16

Mortgage Notes and Other Borrowings — The fair value of our mortgage notes and other borrowings are estimated using a discounted cash flow analysis, based on our estimate of market interest rates. Credit spreads relating to the underlying instruments are based on unobservable Level 3 inputs, which we have determined to be our best estimate of current market spreads of similar instruments. 

8. STOCKHOLDERS’ EQUITY 

Common Stock

On March 14, 2016, we completed a self-tender offer, pursuant to which we accepted for purchase approximately 4.1 million unclassified shares of common stock, which we refer to as “Class E” shares, at a purchase price of $7.39 per share for an aggregate cost of approximately $30.0 million. The following table describes the changes in each class of common shares during the three months ended March 31, 2016 (shares and dollar amounts in thousands): 

		Class E					Class A						Class W						Class I						Total
	Shares			Amount (1)			Shares			Amount (1)			Shares			Amount (1)			Shares			Amount (1)			Shares			Amount (1)
Balances, December 31, 2015		137,275		$	1,482,140			1,703		$	12,438			1,812		$	12,952			23,334		$	162,283			164,124		$	1,669,813
Issuance of common stock:
Shares sold		—			—			219			1,671			464			3,444			496			3,686			1,179			8,801
Distribution reinvestment plan		513			3,812			8			63			8			57			156			1,162			685			5,094
Stock-based compensation		—			—			—			—			—			—			22			410			22			410
Redemptions of common stock		(4,518	)		(33,406	)		(1	)		(9	)		(6	)		(40	)		(175	)		(1,303	)		(4,700	)		(34,758	)
Balances, March 31, 2016		133,270		$	1,452,546			1,929		$	14,163			2,278		$	16,413			23,833		$	166,238			161,310		$	1,649,360

(1) Dollar amounts presented in this table represent the gross amount of proceeds from the sale of common shares, or the amount paid to stockholders to redeem or repurchase common shares, and do not include other costs and expenses accounted for within additional paid-in capital, such as selling commissions, dealer manager and distribution fees, offering and organizational costs, and other costs associated with our distribution reinvestment plans, share redemption programs, and self-tender offers.

9. RELATED PARTY TRANSACTIONS

Our day-to-day activities are managed by our Advisor, a related party, under the terms and conditions of the Advisory Agreement. Our Advisor is considered to be a related party as certain indirect owners and employees of our Advisor serve as two of our directors and all of our executive officers. The responsibilities of our Advisor cover all facets of our business, and include the selection and underwriting of our real property and debt related investments, the negotiations for these investments, the asset management and financing of these investments and the oversight of real property dispositions.

Dividend Capital Securities LLC, which we refer to as the “Dealer Manager,” is distributing the shares of our common stock in our public offering on a “best efforts” basis. The Dealer Manager is an entity related to our Advisor and is a member of the Financial Industry Regulatory Authority, Inc., or FINRA. The Dealer Manager coordinates our distribution effort and manages our relationships with participating broker-dealers and financial advisors and provides assistance in connection with compliance matters relating to marketing our public offering.

On September 16, 2015, the Company entered into a Second Amended and Restated Dealer Manager Agreement (the “Second Amended Dealer Manager Agreement”) with our Dealer Manager. The Dealer Manager served as dealer manager for the Prior Offering and will serve as dealer manager for the Follow-On Offering. The Second Amended Dealer Manager Agreement is an amendment and restatement of the dealer manager agreement entered into by the Company and our Dealer Manager on February 8, 2013 in connection with the Prior Offering, as amended by Amendment No. 1 dated May 31, 2013, Amendment No. 2 dated June 26, 2013 and Amendment No. 3 dated March 20, 2014. The purpose of the Second Amended Dealer Manager Agreement is to engage our Dealer Manager with respect to the Follow-On Offering. As amended, the Second Amended Dealer Manager Agreement may be made to apply to future offerings by naming them in a schedule to the agreement, with the consent of the Company and our Dealer Manager. Pursuant to the Second Amended Dealer Manager Agreement, we pay (i) selling commissions on Class A shares sold in the primary offering of up to 3.0% of the public offering price per share, (ii) a dealer manager fee which accrues daily in an amount equal to 1/365th of 0.6% of our NAV per share of Class A and Class W shares outstanding and an amount equal to 1/365th of 0.1% of our NAV per share of Class I shares outstanding on such day on a continuous basis, and (iii) a distribution fee which accrues daily in an amount equal to 1/365th of 0.5% of our NAV per Class A share outstanding on such day on a continuous basis. Subject to Financial Industry Regulatory Authority, Inc., or FINRA, limitations on underwriting compensation, we will continue to pay the dealer manager fee and distribution fee until the earlier to occur of the following: (i) a listing of the class of such shares on a national securities exchange or (ii) such shares no longer being outstanding.

Restricted Stock Unit Agreements

We have entered into Restricted Stock Unit Agreements (the “Advisor RSU Agreements”) with our Advisor. The purposes of our Advisor RSU Agreements are to promote an alignment of interests among our stockholders, our Advisor and the personnel of our Advisor and its affiliates, and to promote retention of the personnel of our Advisor and its affiliates. Pursuant to the terms of the Advisor RSU Agreements, we have granted approximately 566,000 restricted stock units (“Company RSUs”) to our Advisor that remain unvested and unsettled as of March 31, 2016. Each Company RSU will, upon vesting, be settled in one share of our Class I common stock. The Company RSUs are subject to specified vesting and settlement provisions and, upon settlement in Class I shares of Company common stock, require offsets of advisory fees and expenses otherwise payable from the Company to our Advisor based on the NAV per Class I share on the grant date of the applicable Company RSU (the weighted average grant-date NAV per Class I share with respect to the unsettled Company RSUs is $7.14 as of March 31, 2016). As of March 31, 2016, all of the Class I common stock issued upon settlement of Company RSUs has been used for offset of advisory fees.

 F-17

Vesting and Payment Offset

Following specified vesting provisions, an equal percentage of the Company RSUs vest on each of the applicable vesting dates. On each vesting date, an offset amount (each, an “Offset Amount”) will be calculated and deducted on a pro rata basis over the next 12 months from the cash payments otherwise due and payable to our Advisor under our then-current Advisory Agreement for any fees or expense reimbursements. Each Offset Amount equals the number of Company RSUs vesting on such date multiplied by the NAV per Class I share publicly disclosed by us (“the “Class I NAV”) as of the end of the applicable grant date (the “Grant Date NAV per Class I Share”). Each Offset Amount will always be calculated based on the Grant Date NAV per Class I Share, even beyond the initial grant and vesting date. At the end of each 12-month period following each vesting date, if the Offset Amount has not been fully realized by offsets from the cash payments otherwise due and payable to our Advisor under the Advisory Agreement, our Advisor shall promptly pay any shortfall to us.

The chart below shows the grant dates, vesting dates, number of unvested shares as of March 31, 2016, and Grant Date NAV per Class I Share (share amounts in thousands).

Award	Grant Date	Vesting Dates	Number of Unvested Shares	Grant Date NAV  per Class I Share
Company RSU	4/7/14	4/15/16, 4/14/17	247	$	6.96
Company RSU	2/25/15	4/15/16, 4/14/17	59		7.18
Company RSU	2/25/15	4/13/18	135		7.18
Company RSU	2/4/16	4/15/19	124		7.41
Total/ weighted average			565	$	7.14

Termination

The Advisor RSU Agreements will automatically terminate upon termination or non-renewal of the Advisory Agreement by any party for any reason. In addition, upon a change in control of us, then either our Advisor or we may immediately terminate the Advisor RSU Agreements. Further, our Advisor may immediately terminate the Advisor RSU Agreements if we exercise certain rights under the Advisor RSU Agreements to replace the Company RSUs with another form of compensation.

Upon termination of the Advisor RSU Agreements, our Advisor will promptly pay any unused offset amounts to us or, at our Advisor’s election, return Class I shares in equal value based on the Class I NAV as of the date of termination of the Advisor RSU Agreements. In addition, upon termination of the Advisor RSU Agreements, all unvested Company RSUs will be forfeited except that, unless the Advisor RSU Agreements were terminated at the election of our Advisor following a change in control of us or as a result of a premature termination of the Advisory Agreement at our election for cause (as defined in the Advisory Agreement) or upon the bankruptcy of our Advisor, then following such forfeiture of Company RSUs, our Advisor will have the right to acquire from us the number of Class I shares equal to the number of Company RSUs forfeited, in return for a purchase price equal to such number of Class I shares multiplied by the Grant Date NAV per Class I Share. The Advisor must notify us of its election to exercise the foregoing acquisition right within 30 days following the termination of the Advisor RSU Agreements, and the parties will close the transaction within 60 days following the termination of the Advisor RSU Agreements.

Dividend Equivalent Payments

If our board of directors declares and we pay a cash dividend on Class I shares for any period in which the Company RSUs are outstanding (regardless of whether such Company RSUs are then vested), our Advisor will be entitled to dividend equivalents (the “Dividend Equivalents”) with respect to that cash dividend equal to the cash dividends that would have been payable on the same number of Class I shares as the number of Company RSUs subject to the Advisor RSU Agreements had such Class I shares been outstanding during the same portion of such period as the Company RSUs were outstanding. Any such Dividend Equivalents may be paid in cash or Class I shares, at our Advisor’s election.

Restricted Stock Grant

Effective February 4, 2016, we granted 49,340 restricted shares of Class I common stock to certain employees of our Advisor and its affiliates at a price of $7.41 per share, which will vest ratably over four years. During the three months ended March 31, 2016, 12,335 shares vested at a price of $7.40, our NAV per share as of the vesting date.

 F-18

Summary of Fees and Other Amounts

The following table summarizes fees and other amounts earned by our Advisor and its related parties in connection with services performed for us during the three months ended March 31, 2016 and 2015 (amounts in thousands):

	For the Three Months Ended March 31,
	2016		2015
Advisory fees (1)	$	3,765	$	4,299
Other reimbursements paid to our Advisor (2)		2,177		2,225
Other reimbursements paid to our Dealer Manager		51		72
Advisory fees related to the disposition of real properties		1,807		4,452
Development management fee		21		16
Selling commissions, dealer manager, and distribution fees		152		68
Total	$	7,973	$	11,132

(1) Amounts reported for the three months ended March 31, 2016 and 2015 include approximately $283,000 and $222,000, respectively, that we were not obligated to pay in consideration of the issuance of Company RSUs to our Advisor.

(2) Other reimbursements paid to our Advisor primarily comprise salary, bonus, overhead reimbursements, and restricted stock granted to certain of our Advisor’s employees that provide us with services.

See the accompanying condensed consolidated balance sheets for the amounts we owed to our Advisor and affiliates of our Advisor for such services and reimbursement of certain expenses as of March 31, 2016 and December 31, 2015. Pursuant to the Advisory Agreement, we accrue the advisory fee on a daily basis and pay our Advisor amounts due subsequent to each month-end.

Launch of Private Placements of Delaware Statutory Trust Interests

Private Placements

In March 2016, we, through the Operating Partnership, initiated a program to raise capital in private placements exempt from registration under the Securities Act of 1933, as amended (“Private Placements”), through the sale of beneficial interests (“Interests”) in specific Delaware statutory trusts holding real properties, including properties currently indirectly owned by the Operating Partnership (the “DST Program”). From 2006 through 2009, we, through our subsidiaries, conducted similar private placement offerings of fractional interests in which it raised a total of $183.1 million in gross proceeds. These fractional interests were all subsequently acquired by the Operating Partnership in exchange for an aggregate of 17.7 million OP Units.

Each Private Placement will offer Interests in one or more real properties placed into one or more Delaware statutory trust(s) by the Operating Partnership or its affiliates (“DST Properties”). We anticipate that these Interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”). Additionally, properties underlying Interests sold to investors pursuant to such Private Placements will be leased-back by an indirect wholly owned subsidiary of the Operating Partnership on a long term basis of up to 29 years. The lease agreements are expected to be fully guaranteed by the Operating Partnership. Additionally, the Operating Partnership will retain a fair market value purchase option (“FMV Option”) giving it the right, but not the obligation, to acquire the Interests from the investors at a later time in exchange for OP Units.

Dealer Manager Agreement

In connection with the DST Program, in March 2016, Dividend Capital Exchange LLC (“DCX”), a wholly owned subsidiary of our taxable REIT subsidiary that is wholly owned by the Operating Partnership, entered into a Dealer Manager Agreement with our Dealer Manager, pursuant to which the Dealer Manager agreed to conduct Private Placements for Interests reflecting an indirect ownership of up to $500 million of Interests. DCX will pay certain up-front fees and reimburse certain related expenses to the Dealer Manager with respect to capital raised through any such Private Placements. DCX is obligated to pay the Dealer Manager a dealer manager fee of up to 1.5% of gross equity proceeds raised and a commission of up to 5% of gross equity proceeds raised through the Private Placements. The Dealer Manager may re-allow such commissions and a portion of such dealer manager fee to participating broker dealers.

In addition, we, or our subsidiaries, are obligated to pay directly or reimburse the Advisor and the Dealer Manager if they pay on our behalf, any organization and offering expenses (other than selling commissions and the dealer manager fee) as and when incurred. These expenses may include reimbursements for the bona fide due diligence expenses of participating broker-dealers, supported by detailed and itemized invoices, and similar diligence expenses of investment advisers, legal fees of the Dealer Manager, reimbursements for customary travel, lodging, meals and reasonable entertainment expenses of registered persons associated with the Dealer Manager, the cost of educational conferences held by us, including costs reimbursement for registered persons associated with the Dealer Manager and registered representatives of participating broker-dealers to attend educational conferences sponsored by us, and attendance fees and costs reimbursement for registered persons associated with the Dealer Manager to attend seminars conducted by participating broker-dealers and promotional items.

 F-19

 We intend to recoup the costs of the selling commissions and dealer manager fees described above through a purchase price “mark-up” of the initial estimated fair value of the DST Properties to be sold to investors, thereby placing the economic burden of these up-front fees on the investors purchasing such Interests. In addition, to offset some or all of our organization and offering expenses associated with the Private Placements, we will add a purchase price mark-up of the estimated fair value of the DST Properties to be sold to investors in the amount of 1.5% of the gross equity proceeds. Collectively, these purchase price mark-ups total up to 8% of the gross equity proceeds raised in the Private Placements. Additionally, we will be paid, by investors purchasing Interests, a non-accountable reimbursement equal to 1.0% of gross equity proceeds for real estate transaction costs that we expect to incur in selling or buying these Interests. Also, investors purchasing Interests will be required to pay their own respective closing costs upon the initial sale of the interests.

Advisory Agreement

In connection with the DST Program, we, the Operating Partnership and the Advisor entered into the Ninth Amended and Restated Advisory Agreement, dated as of March 2, 2016 (the “Amended Advisory Agreement”). The Amended Advisory Agreement amends the prior advisory agreement by providing that the fixed component of the advisory fee paid to the Advisor, in consideration for the asset management services it provides on the our behalf, is now a fixed component that accrues daily in an amount equal to 1/365th of 1.15% of (a) the “Aggregate Fund NAV” (i.e., the aggregate net asset value or “NAV” of our Class E shares, Class A shares, Class W shares and Class I shares, along with the OP Units held by third parties) for such day and (b) the consideration received by us or our affiliate for selling Interests in DST Properties to third party investors, net of up-front fees and expense reimbursements payable out of gross sale proceeds from the sale of such Interests, including but not limited to sales commissions, dealer manager fees and non-accountable expense allowances. Before this amendment, the Advisor was paid based on the amount of equity outstanding, and while the Private Placement is intended to raise capital for us, cash proceeds are received the day the Interests are sold but OP Units may not be issued for several years, if at all. This amendment clarifies that the Advisor will earn compensation for managing proceeds raised in the Private Placement. We will continue to pay the Advisor a development management fee equal to 4.0% of the cost to develop, construct or improve any properties, regardless of whether they are held in fee simple or DST Properties held through leasehold interests (though we may make only minor, non-structural modifications to DST Properties). The Amended Advisory Agreement also clarifies that we must reimburse the Advisor for any private offering organization and offering expenses, such as those of the DST Program, it incurs on our behalf, including Advisor personnel costs, unless it has agreed to receive a fee in lieu of reimbursement.

Limited Partnership Agreement

In connection with the launch of the DST Program, the Company, on behalf of itself as general partner and on behalf of all the limited partners thereto, entered into the Fifth Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated as of March 2, 2016 (the “Amended and Restated Operating Partnership Agreement”). The Amended and Restated Operating Partnership Agreement amends the prior operating partnership agreement by establishing two series of Class E OP Units, with different redemption and registration rights. The currently existing third-party holders of Class E OP Units will now hold Series 1 Class E OP Units, and will continue to have the same redemption and registration rights they had previously, which include the right, in certain circumstances to require the Operating Partnership to redeem the OP Units for Class E shares of the Company or cash. Any purchasers of Interests in the DST Program that ultimately acquire OP Units through the FMV Option will acquire Series 2 Class E OP Units, which will have similar redemption and registration rights to those of the holders of Series 1 Class E OP Units, except that their redemption rights will in certain circumstances require the Operating Partnership to redeem the OP Units for Class I shares of the Company or cash. In addition, the Amended and Restated Operating Partnership Agreement provides that a redemption fee of 1.5% of the shares otherwise payable to a limited partner upon redemption of Series 2 Class E Units will be paid to the Manager (defined below). Holders of Series 1 or Series 2 Class E OP Units cannot require us to redeem their Series 1 or Series 2 Class E OP Units with cash.

Delaware Statutory Trust Agreement

DCX Manager LLC (the “Manager”), an affiliate of the Advisor, will be engaged to act as the manager of each Delaware statutory trust holding a DST Property. Although the intention is to sell 100% of the interests to third parties, DCX may hold an interest for a period of time and therefore could be subject to the following description of fees and reimbursements paid to the Manager. The Manager will have primary responsibility for performing administrative actions in connection with the trust and any DST Property and has the sole power to determine when it is appropriate for a trust to sell a DST Property. The Manager will be entitled to the following payments from the trust: (i) a management fee equal to a stated percentage (e.g., 1.0%) of the gross rents payable to the trust, with such amount to be set on a deal-by-deal basis, (ii) a disposition fee of 1.0% of the gross sales price of any DST Property sold to a third party, and (iii) reimbursement of certain expenses associated with the establishment, maintenance and operation of the trust and DST Properties.

 F-20

Additionally, the Manager or its affiliate may earn a 1.0% loan fee for any financing arrangement sourced, negotiated and executed in connection with the DST Program. This loan fee only is payable to the Manager by new investors that purchase Interests and therefore is not paid by the Company or its affiliates.

10. NET INCOME PER COMMON SHARE

Reconciliations of the numerator and denominator used to calculate basic net income per common share to the numerator and denominator used to calculate diluted net income per common share for the three months ended March 31, 2016 and 2015 are described in the following table (amounts in thousands, except per share information):

	For the Three Months Ended March 31,
Numerator	2016			2015
Net income	$	48,238		$	132,201
Net income attributable to noncontrolling interests		(4,456	)		(8,618	)
Net income attributable to common stockholders		43,782			123,583
Dilutive noncontrolling interests share of net income		3,401			8,580
Numerator for diluted earnings per share – adjusted net income		47,183			132,163
Denominator
Weighted average shares outstanding-basic		163,954			179,317
Incremental weighted average shares effect of conversion of OP units		12,736			12,449
Weighted average shares outstanding-diluted		176,690			191,766
INCOME PER COMMON SHARE-BASIC AND DILUTED	$	0.27		$	0.69

11. SEGMENT INFORMATION

We have three reportable operating segments, which include our three real property operating sectors (office, industrial, and retail), and we measure our profit and loss of our operating segments based on net operating income (“NOI”). We organize and analyze the operations and results of each of these segments independently, due to inherently different considerations for each segment. Such considerations include, but are not limited to, the nature and characteristics of the investment, and investment strategies and objectives. Specifically, the physical characteristics of our buildings, the related operating characteristics, the geographic markets, and the type of tenants are inherently different for each of our segments. The following table sets forth revenue and the components of NOI of our segments for the three months ended March 31, 2016 and 2015 (amounts in thousands):   

	For the Three Months Ended March 31,
	Revenues				NOI
	2016		2015		2016		2015
Office	$	33,969	$	35,482	$	23,283	$	26,574
Industrial		1,711		4,351		1,267		3,752
Retail		19,864		19,546		14,676		13,924
Total	$	55,544	$	59,379	$	39,226	$	44,250

We consider NOI to be an appropriate supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and debt related investments, and excludes certain items that are not considered to be controllable in connection with the management of each property, such as depreciation and amortization, general and administrative expenses, advisory fees, acquisition-related expenses, interest and other income, interest expense, loss on extinguishment of debt and financing commitments, gain on the sale of real property and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our financial performance as a whole, since it excludes such items that could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance.

As of March 31, 2016, we had approximately $15.6 million in net debt related investments, which was not material relative to our total investments. Our management currently is not seeking to increase our investment in our debt related investments portfolio due to its less desirable return when compared to our other investment options. As such, we no longer consider debt related investments to be a material reportable operating segment. Accordingly, we have not presented debt related investments as a separate segment for the three months ended March 31, 2016 and we have revised the prior period to conform to the presentation of the current period.

 F-21

The following table is a reconciliation of our NOI to our reported net income attributable to common stockholders for the three months ended March 31, 2016 and 2015 (amounts in thousands):

	For the Three Months Ended March 31,
	2016			2015
Net operating income	$	39,226		$	44,250
Debt related income		238			3,203
Real estate depreciation and amortization expense		(19,835	)		(20,815	)
General and administrative expenses		(2,621	)		(2,735	)
Advisory fees, related party		(3,765	)		(4,299	)
Acquisition-related expenses		(51	)		(425	)
Impairment of real estate property		(587	)		(1,400	)
Interest and other income		58			632
Interest expense		(10,961	)		(13,981	)
Gain (loss) on extinguishment of debt and financing commitments		5,136			(896	)
Gain on sale of real property		41,400			128,667
Net income attributable to noncontrolling interests		(4,456	)		(8,618	)
Net income attributable to common stockholders	$	43,782		$	123,583

The following table reflects our total assets by business segment as of March 31, 2016 and December 31, 2015 (amounts in thousands):

	As of
	March 31, 2016		December 31, 2015
Segment assets:
Office	$	871,777	$	1,027,132
Industrial		63,232		61,231
Retail		780,287		785,854
Total segment assets, net		1,715,296		1,874,217
Non-segment assets:
Debt related investments, net		15,596		15,722
Cash and cash equivalents		11,675		15,769
Other non-segment assets (1)		51,906		55,183
Total assets	$	1,794,473	$	1,960,891

(1) Other non-segment assets primarily consist of corporate assets including restricted cash and receivables, including straight-line rent receivable.

12. SUBSEQUENT EVENTS

We have evaluated subsequent events for the period from March 31, 2016, the date of these financial statements, through the date these financial statements are issued, and determined that there have been no significant subsequent events.

 F-22